Retirement Income Planning for Couples with Age Gaps

retirement income planning for couples with age gaps

Like other folks, you probably see waves of retirement advice from the papers, financial talkshows, online news sources, and other outlets. Much of that advice assumes that among couples, both spouses are approximately the same age. That often results in solutions designed to address the needs of couples entering their retirement years together.

But what about couples with sizable age differences? Their different retirement timelines are likely to present unique problems. When such is your situation, how can you plan for your retirement effectively?

If one spouse is eligible to retire 10 or more years ahead of the other, that spouse will be making choices that not only affect their own retirement. It impacts their partner's retirement, as well. Those decisions could have a dramatic impact on the younger spouse’s lifestyle now and during their own golden years.  

Not only does their age disparity affect their retirement plan, it means that life events, both those foreseen (e.g., retirement or required minimum distributions) and unforeseen (e.g., the need to help care for aging parents), will be faced at different stages in their lives.

How to Handle Retirement with Age Differences?

When you and your spouse are roughly the same age, you will likely face a similar retirement horizon, or the number of years you will spend in retirement.

Women tend to live an average of 4.8 years longer than men, according to the August 2017 National Vital Statistics Report by the Center for Disease Control. As a result, it's common for a couples’ retirement plan to factor in income that extends through additional years lived by one spouse.

Since you are an "age-gap couple," it's important to start preparing as early as possible for retirement. The sooner you start your planning, the more likely you are to reach that point. Beginning the process at the earliest opportunity will also help you deal with a top risk for couples with age gaps: portfolio longevity. 

Unique Income-Planning Concerns

Portfolio longevity simply refers to the extended timeline that your retirement money and assets will need to last. Instead of making your portfolios generate income for 30 years or so, you will need to consider ways to make them last even longer. With today's life expectancy statistics, it could be for 40 to 50 years. Or perhaps even longer, depending on the younger spouse’s age.

This is just one of the unique dynamics that age-gap couples face when planning their retirement. Knowing what to consider for Social Security, healthcare planning, income planning, and portfolio allocations will help you explore all your options as you pave the way for an “age-gap” retirement.

Balancing Growth and Safety

A retiring spouse may seek asset allocations that provide safety. After all, that spouse’s earning years are over and the nest egg that has been built up needs to serve them throughout retirement.

But the younger spouse may be interested more in portfolio growth versus asset preservation. Come retirement, they will need that growth to sustain their income needs throughout their later years. Not only that, equities and other vehicles with high capital appreciation potential will also be needed to keep up with inflation.

That said, one danger in focusing solely on growth is sequence of returns risk. This risk proposes that if a market correction resulting in heavy portfolio losses occurs early in retirement, it becomes difficult to recover from it. In turn, it can have a lasting effect on someone's retirement lifestyle.

An experienced financial professional can help you find the balance of growth and safety that is right for you and your spouse. However, a prudent retirement plan will incorporate strategies for both growth and asset preservation, timed for each spouse’s needs.

Ask your financial advisor about potential strategies for bridging this gap in income and financial needs.

Tax-Wise Planning a Must

Yes, taxes are a major retirement concern for partners of all age differences. But their effects can hold even greater weight for couples with sizable age gaps. When long-term tax obligations enter the mix, they might affect future income prospects of the younger spouse.

When the older spouse is forced to take required minimum distributions, that erodes the balance left to the younger spouse. To counteract this, you may want to incorporate after-tax income sources into you and your partner's long-term financial plan. Those after-tax sources may include:

  • A Roth IRA,
  • Payouts from a non-qualified annuity (after-tax contract), or
  • Income payments from a SPIA (single-premium immediate annuity with non-qualified funding when the older spouse needs immediate income).

In the aftermath of the 2017 tax cuts, consider tax-smart money moves now so you and your spouse can benefit over the long run. An experienced financial professional can discuss backdoor IRA conversions, utilization of certain tax-advantaged instruments, and portfolio restructuring options for more tax-efficient income generation, among other possibilities.

Healthcare Considerations

Have you enjoyed workplace health benefits? A key concern may be how you will pay for your healthcare once you retire—and whether your spouse will lose their coverage when you leave your job.

While we all hope to stay healthy as we age, it’s likely there are greater healthcare expenses awaiting ahead.

For example, this scary statistic is well reported: The average retired couple may pay as much as $280,000 in total healthcare costs in retirement. And that is when both spouses are 65!

At 65, the elder spouse will be eligible for Medicare, but the younger spouse now must deal with health insurance coverage of their own. If not a workplace-provided benefit, that can be a substantial cost in itself, and it might not cover all health needs. The solution?

Experts point to a number of possible options. One is having a dedicated account that accumulates funds for future healthcare spending while growing at a rate that keeps pace with healthcare inflation. A financial professional can help you determine what options are at your disposal -- along with what that growth rate might need be. 

Another potential solution is a health savings account (HSA). If someone has a high-deductible health insurance policy, they may qualify for an HSA. Contributions to the HSA can be tax-deductible, the money can grow on a tax-advantaged basis, and withdrawals for qualifying medical needs may be tax-free. Ask your financial professional if any of these options might make sense for you.

Don't Forget Long-Term Care

Of course, medical care is just one side of the health spending puzzle. Another is long-term care services. If they don't have a plan set, couples may find themselves spending down assets or savings to cover what can be substantial long-term care expenses.

You can avoid the potential portfolio-depleting effects of long-term care by building an LTC strategy that doesn’t draw down assets for the younger spouse. There are many options available, including:

  • Long-term care insurance,
  • Life insurance with living benefits or confinement care riders,
  • Asset based long-term-care hybrid policies, and
  • Other insurance offerings.

With the help of a financial or insurance professional you can compare your needs. Go over cost commitments for each option and how much money you can devote without impinging on your younger partner’s need for liquidity. You will also want to determine whether there is an underwriting process involved and, if so, if you would pass it.

Be aware that the cost of care services not for you, but for your aging parents, may enter into your financial planning situation as well.

Will you, as a couple, be spending down savings or assets to pay for parents' care, while also facing the specter of an extended planning horizon for your portfolio longevity needs? Have a conversation early on with your parents to encourage them to investigate acquiring (and paying for) their own future LTC needs.

Social Security Strategies

As our prime earning potential increases generally with age and time in the workforce, it ties into Social Security benefits and earnings records. This brings up another important point. Another critical decision for couples with age gaps is when the older spouse takes Social Security. 

Ultimately, you will want to consider a variety of different claiming strategies based on your unique circumstances. Generally, though, the older of the spouses may delay taking their benefits. It might even mean holding off until age 70, assuming their earning power matches their age. 

Maximizing benefits with this general approach will help you increase benefits for you in the present, as well as survivor benefits for your spouse.

However, you may want to consider alternative claiming strategies. For instance, claiming benefits early can make sense if those monthly payments are then reinvested to grow and be used for later retirement income.

Managing Long-Term Fixed-Income Needs 

With an extended timeline for retirement spending, a top challenge is how to cover monthly fixed expenses over the long run. How can present and future monthly income needs be accounted for?

One potential answer is annuities. They are uniquely structured as long-term, money-for-life contracts offering guaranteed income that can last as long as you might need them. These contracts can be laddered and later turned on as the fixed-income portion of your portfolio.

Joint lifetime payouts are worth evaluating, depending on the spouses' ages and overall age gap. The payout factor is based on the age of the younger spouse. Whether you choose a joint or single annuity will depend on your needs, wants, and overall financial picture.

Keep in mind, though, that any life-only payouts—whether for a single person or a couple—result in the remaining balance that has not been paid going to the insurance carrier.

You have other payout options that can offer your partner a continued income stream after one passes away. What about heirs? Some payout options will leave your beneficiaries to take over remaining payments should both spouses pass away.

Your financial professional can help you with navigating those questions and determine the factors—and strategies—that are most important to you.

Need Help with Your Future Retirement?

Are you looking for help with creating a financial roadmap for you and your spouse? If so, financial professionals at can assist you.

Use our "Find a Financial Professional" section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.

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