How do you plan retirement for a couple who is 10, 15 or 30 years different in age? Retirement planning is personal – no two couples are alike. However, “May-December” relationships pose unique retirement planning challenges.
Most married couples have a small age difference (less than three years). About five percent of first marriages and 20 percent of second marriages involve couples with an age difference of at least 10 years according to Pew Research. The average age disparity is higher for LGBTQ couples per a Facebook Data survey.
Financial planning implications for age-gap relationships include retirement funding and health care.
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You’ll fill the gap between your lifestyle needs versus social security and pension with savings – 401(k) plans, after-tax investing, inheritance, business sale, etc. Normally, we’re planning for three decades of retirement at 65. However, longevity is increasing. Add a significantly younger spouse and two things happen: required wealth rises and your withdrawal rate declines. The wealth required to fund a $50,000 annual withdrawal for 30 years is about $1.1 million, assuming five percent return and three percent inflation; for 40 years, the wealth required is about $1.34 million. The math game becomes more complicated.
Social Security timing
Generally, it’s advantageous to defer Social Security retirement benefits to lock in higher rates and survivor benefits (6.5 percent to 8 percent per year between age 62 and 70). However, one of the spouses might prefer to take their benefits sooner. The survivor may collect the deceased’s benefits at full retirement age or reduced benefits at 60. The survivor may qualify for benefits on their own earnings history. Remarriage after age 60 might not affect survivor benefits. A surviving divorced spouse may be eligible for a benefit if married for 10 years or more. Contact SSA.gov for more specific details.
Pension benefit elections
Defined benefit pensions such as PERS provides a monthly benefit based on average compensation and length of service. Terms are also specific when you’re eligible to draw benefits. Survivor benefits for your spouse are reduced; they’ll get 50 percent, for example. The discounts increase the greater the age difference.
The older retiree is probably close to Medicare eligibility (age 65). However, the younger spouse may need to obtain their own health care insurance (e.g. through an employer or an exchange or exploring association coverage if eligible). Consider funding health savings accounts to the maximum if eligible (to pay qualified expenses on a tax-advantaged basis).
AARP posted an article, “Do May-December Romances Work?” It referenced an Australian study that said the bigger the age gap, the more likely the split. Age-gap relationships can cause family friction and complicate family dynamics. Pressures may come if it’s a second marriage and your children fear they’ll be cut off. It’s why your advisers likely recommended legal protection including prenuptials, separate assets, trusts and possibly independent trustees, beneficiary designation reviews, and other estate planning actions.
Finding the right balance
According to a Fidelity study, about one in three couples haven’t well-communicated their retirement hopes and expectations. Now’s the time to hash things out. Will there be guilt or frustration if one retires and the other continues to work? What if you wait too long, the younger one is ready to retire and see the world, but the older one no longer has the legs to make the trek? Or consider that the older partner is ready to spend money (travel, gifts, or care) and the younger one is concerned about “what if I need it?”
If “love knows no age” holds true and as longevity increases, then age-gap couples face multiple planning issues – financial and emotional. Secure your future wisely.
Brian Loy, CFA, CFP, is president of Reno-based Sage Financial Advisors Inc. Contact him at www.sagefinancialadvisors.com or email@example.com.