Retirement planning for a married couple can be complex, especially if there is an age difference of 10, 15, 20 or more years between the spouses. Couples with significant age differences are, in many respects, planning for two retirements, and that adds additional considerations.
Longer combined life expectancy
Couples who are close in age can typically expect a more-or-less overlapping life expectancy, which means a more-or-less overlapping retirement period. (Women often have a longer life expectancy than men.)1 Couples with a significant age gap may have to plan for a much longer combined retirement period.
As an example, let’s say we have a wife who is 62 and a husband who is 47. If they each live until age 85, they need to cover 38 years of retirement (assuming the younger spouse doesn’t work) instead of approximately 23 years of retirement if they were closer in age.
In our view, this couple will essentially need to have a portion of their portfolio invested for the wife's life expectancy and a portion for the husband's.
Social Security
When to claim Social Security benefits is a difficult choice, even when spouses are close in age. Often times, the higher earning spouse will wait until at least their full retirement age, or as late as age 70 to file. Doing this provides the highest possible survivor’s benefit to the other spouse in the event that the higher earning spouse dies first.
In the case of a couple with a large age discrepancy, this approach can still make a lot of sense if the older spouse is the one with the higher Social Security benefit. If the spouse with the higher benefit dies first, they will leave a survivor’s benefit that might be larger than the younger spouse’s own benefit. The younger spouse, by contrast, might want to take their own benefit as early as age 62. This provides additional cash flow while they are both alive, and if the younger spouse outlives the older, they’d switch to the older spouse’s larger benefit.
If, on the other hand, the younger spouse is the one with the higher benefit, it might make sense for the older spouse to take their benefit as early as is practical (depending on various factors, including when they stop working) in order to receive their benefit for a longer period of time.
Pensions and annuities
Workplace pensions and annuity contracts typically offer several ways the covered person can receive payments, and some sort of joint and survivor option is common. If the older spouse has a pension or annuity, the joint and survivor option might make sense as the younger, surviving spouse, will receive a series of payments.
If the younger spouse has the pension or owns an annuity contract, the choice can be a bit more complicated. A single life annuity can provide the largest series of payments, but this generally doesn’t leave any sort of survivor’s benefit. Reviewing beneficiary options may offer the best outcomes for their situation.
Either spouse might consider a QLAC (qualified longevity annuity contract) inside their 401(k) or IRA account. A QLAC is a deferred annuity that allows the contract owner to defer up to $200,000 (indexed for inflation) to age 85 at the latest.2 In the case of a QLAC, the money used to fund the annuity is exempt from RMDs until such time as the contract is annuitized or money is otherwise distributed. This can benefit both the older spouse (when payments begin) and the younger spouse (assuming both they and the QLAC outlive the older spouse).
Of course, there are multiple ways pensions and annuities can serve both spouses, including taking a lump sum, taking a single-life payout and using the proceeds to buy life insurance on the spouse with the annuity, joint life pensions, and more.
Health insurance
Health care can be one of the largest expenses for a couple in retirement, and there are a number of options for a couple with a significant age difference.3
If both spouses are working, they can maintain separate health coverage from their employers, potentially even after the older spouse is Medicare eligible. Once the older spouse leaves their employer, they can enroll in Medicare or, potentially, be covered under their younger spouse’s insurance.
However, if the older spouse enrolls in Medicare after 65 and the younger spouse is neither working nor Medicare eligible, then the younger spouse will need to find their own health insurance coverage, such as that offered through state marketplace systems.
Investments
Typically, many investors adjust their allocations as they approach retirement to provide less volatile resources they can tap for living expenses. When a couple has a significant age gap, this can get more complicated, because the younger spouse needs their savings to grow to support their own retirement, while the older spouse may need ready cash for expenses, including RMDs.
Because tax-deferred retirement accounts are separately owned, the simplest solution could be for each spouse to allocate the resources in their accounts relative to their expected retirement dates.
For taxable accounts that are jointly owned, the couple should assess how the account fits into their combined retirement plans and look at these assets in terms of risk and timing for two overlapping but distinct retirement periods.
Estate planning
If neither spouse has been previously married and there are no children outside the current marriage, estate planning can be relatively simple. Through both a will and beneficiary designations, the older spouse can explicitly leave assets to the younger spouse and potentially the children, including real estate and brokerage and bank accounts.
Similarly, the younger spouse can use a will and beneficiary designations to allocate assets, although in this case, they may be directed primarily to children or grandchildren.
However, if there was a prior marriage, especially a prior marriage with children (which can often be the case for the older spouse), it can be much more complicated. In this case, the older spouse may want to be sure that their will, their beneficiary designations, any trusts, and the titling of assets and property are done very carefully to ensure that assets designated for the younger spouse go to the younger spouse, and that assets designated for children from a current and/or a former marriage are directed towards those children.
A failure to be adequately specific can result in an estate being tied up in court for years, draining the estate with legal fees and keeping assets from those the older spouse wished to benefit. This can negatively affect the retirement of the younger spouse in many cases.
Long-term care
While long-term care planning is important for all retirees, it can be especially important for a couple with a significant age difference.
If the older spouse needs long-term care, the younger spouse might be able to provide some or all of this care. However, if the younger spouse is working or unable to provide care for another reason, the older spouse may need in-home care from professional caregivers or may need to be placed in a care facility.
The younger spouse also needs to plan for this eventuality, since they may be unlikely to have an able spouse to provide care for them.
It makes sense for the couple to plan separately for the potential long-term care each of them may eventually need.
Each situation is different
Perhaps the biggest takeaway for retirement planning for couples with a significant age difference is that each couple’s situation is distinct and will require different planning considerations. Differences in income, health, and any prior marriages are only some of the key considerations.
Because of these factors, it’s vital that a couple with a significant age gap makes retirement plans together to ensure both spouses understand how the plans affect their individual experience. A financial professional can help plan for the complexity of staggered retirements while ensuring both spouses are adequately informed and part of the decision-making.
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