“Retirement planning is personal–no two couples are alike. However, “May-December” relationships pose unique retirement planning challenges.”
How do you plan retirement for couples, when there’s an age difference of 10, 20 or even 30 years? Most married couples have a small age difference, usually around three or four years, says the Reno Gazette Journal in the article “Retirement planning challenges for age-gap relationships.”
However, for those who have a bigger gap—5% of first marriages and 20% of second marriages—there needs to be a special focus on making the two individuals’ needs work. As an aside, the age disparity is higher for LGBTQ couples, according to a Facebook data survey.
Financial matters for large age-gap retirement planning include both retirement funding and health care costs.
Ideally, a mixture of income sources will include Social Security, pensions, 401(k) plans, after-tax investing, inheritance, the sale of a business, etc. Most couples plan for three decades of retirement at age 65, but with a significantly younger spouse, two things typically happen: the level of required assets rises and the withdrawal rate declines. The assets needed to fund a $50,000 withdrawal for 30 years is about $1.1 million (assuming a 5% rate of return and 3% inflation). For 40 years, the wealth required is $1.34 million.
Social Security timing becomes more complex. Generally, one wants to delay taking Social Security benefits as long as possible, to lock in higher rates and survivor benefits. However, if one of the spouses takes their benefits early, the survivor will collect the deceased benefits at full retirement age or reduced benefits at age 60. The survivor may qualify for benefits on their own earnings history. Remarriage after age 60 may or may not impact survivor benefits. A surviving divorced spouse may be eligible for a benefit, if they are married for ten years or more.
Defined benefit pensions, such as PERS, provide a monthly benefit based on average compensation and length of service. Terms are also very specific about when you may draw these benefits. The survivor benefits for spouses are reduced. They may get half of what you would receive.
The cost of health care is a real concern for people with chronic conditions. The older retiree is probably close to being eligible for Medicare. However, if the younger spouse depends on the older spouse for health care coverage, they will have to purchase their own policy privately, which can be extremely expensive, if it is even available. Consider funding HSA accounts (Health Savings Accounts) to the maximum, if eligible.
The question of whether the couple’s relationship will continue after one has retired and the other is still working is a valid one. The bigger the age gap, the less likely their chances for success, say some studies, especially in the case of second or third marriages. Legal protection for you and your children from prior marriages in the form of a prenup or a postnup, beneficiary designations, the use of trusts, keeping assets separate and other planning approaches should be considered to protect all members of the family.
There are several planning issues for couples with big age gaps, but they can be addressed with open and honest communication between the couple and members of their families. An estate planning attorney can help create a plan for many of these challenges.
Reference: Reno Gazette Journal (Nov. 28, 2018) “Retirement planning challenges for age-gap relationships”
Suggested Key Terms: Retirement Planning, Age Gap, Social Security, PERS, Defined Benefit Pensions, Health Care, HSA