Social Security: Do I Need To Plan Retirement Differently If My Spouse Is Significantly Younger?

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Differences in age take extra consideration when you and your significant other are planning retirement. If one spouse is much younger, standard retirement advice may not work for age-gap couples.

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Early retirement for a younger spouse can be very costly and ensuring that that partner will have sufficient income to last the duration of his or her life is a crucial aspect of retirement planning for these couples.

There are several things to keep in mind for spouses born years, if not decades apart when it comes to retirement planning.

When Should You Retire?

It may sound simple, but the more you earn during your working years will stand you and your spouse in good stead when the time comes to retire. If you can work past the typical retirement age, any additional income you can earn now will increase what you will have later.

If investments are part of building your nest egg, experts agree that switching to a more stock-based portfolio, while keeping spending low, is the best plan for growth.  

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The younger spouse might want to work for a few more years as well. With a longer work history and (hopefully) higher salary, some younger spouses may continue collecting a steady income to improve their financial situations and add to their employer-sponsored pensions or retirement plans.

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Adjust Your Spending

One frequently used rule of thumb for retirement spending is known as the 4% rule. You add up all your investments and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount you withdraw to account for inflation.

With a younger spouse in the picture and the longer timeline a couple will have together, a drop to 3% or lower, if you can afford it, is recommended.

Social Security Payouts

Social Security is designed to support workers and their families by providing a guaranteed source of lifetime income for those who meet certain criteria. As such, it is a critical piece in your retirement planning puzzle.

You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase. If you start receiving benefits early, your benefits are reduced a small percent for each month before your full retirement age. If you don’t need the money early and expect to live a long life, hold out as long as you can.

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RMD Withdrawal Exception

Your required minimum distribution (RMD) is the minimum amount you must withdraw from your retirement accounts each year. You generally must start taking withdrawals from your IRA or retirement plan account when you reach age 72 (70 ½ if you reach 70 ½ before January 1, 2020).

However, if your spouse is more than 10 years younger, and your beneficiary, you can withdraw less of a required minimum distribution (RMD) from your IRAs and retirement plan accounts by using the IRS’s joint life expectancy table.

Pension Planning

Most pension plans push a lump sum payment when you retire. However, with an age difference between partners, you should consider taking the 100% maximum joint and survivor annuity option. The primary benefit of owning a joint and survivor annuity is the guarantee that payments will last for the rest of the annuity owner’s life and the life of the other person.

Because the second person is an annuitant, as opposed to a beneficiary, the timeframe for the payment will most likely be longer, and therefore the tax liabilities will be spread over a longer period. Payouts are lower and the lump sum option is not available should a big expense arise, but this option can offer peace of mind, knowing that one’s spouse will have reliable income when they are gone.

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Factor in Health Care

The cost of health coverage is another factor that might dictate when you retire. Holding on to a benefit-providing job before one hits the Medicare-eligible age of 65 shouldn’t be underestimated. If you find you will not have enough savings, you can buy long-term care insurance policy for the younger spouse. Premiums can be high but it might be worth it, even if it funds only a portion of your needs.  

Retirement is a significant marker in one’s life so planning for it can be complex. Adding a younger partner to the mix can add another challenging layer to your plans. It is important to compare priorities and potential costs, do your research and consult a financial planning expert. Once you understand what you both value, you can identify which items resonate and which ones may require compromise.

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About the Author

David Nadelle is a freelance editor and writer based in Ottawa, Canada. After working in the energy industry for 18 years, he decided to change careers in 2016 and concentrate full-time on all aspects of writing. He recently completed a technical communication diploma and holds previous university degrees in journalism, sociology and criminology. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry.
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