Jim White, CFP
Jim White, CFP, EA, is the founder of Great Oak Wealth Management, based in Pottstown, Pennsylvania. GreatOakAdvisors.com
Nearly ten percent of marriages are of individuals who are separated in age by a decade or more. While we often hear that age is just a number, these age-gap couples do face some meaningful retirement-planning complications, explains Jim White of Great Oak Wealth Management, including…
Spouses typically want to retire at the same time so they can enjoy each other’s company and share retirement experiences. But that’s a challenge for age-gap couples. To retire at the same time, the older spouse must work into his/her 70s or beyond…and the younger spouse must retire in his/her 50s or earlier, potentially missing out on peak earnings years…or both.
What to do: The most obvious answer is to split the difference, with the older spouse working somewhat longer than preferred and the younger one retiring somewhat earlier. Or the younger spouse—or both spouses—could continue to work, but cut back their working hours so there’s time for retirement-like activities. Or the older spouse could retire before the younger one and engage in retirement activities with friends rather than the spouse. Any retirement date decision must factor in the financial challenges facing age-gap couples—more about those below.
If the younger spouse retires before age 65—as often occurs in age-gap couples—she will not yet be eligible for Medicare. Obtaining health insurance on the open market is expensive for people in their late 50s and early 60s—premiums often top $1,000 per month, and plans might have hefty co-pays and deductibles.
What to do: If a couple cannot easily fit health insurance into their retirement budget, that’s an added incentive for at least one spouse to continue working sufficient hours to qualify for an employer’s group health insurance plan. Alternatively, a couple might fully retire but keep their household’s modified adjusted gross income (MAGI) sufficiently low to qualify for Affordable Care Act (ACA) coverage subsidies. Qualifying for those subsidies could become more challenging if the current enhanced subsidy rules expire at the end of 2025, as is possible. But even then, retired couples might qualify anyway, since they no longer have earned income. Helpful: Retired couples could reduce their MAGI and thus improve their odds of qualifying for ACA subsidies by tapping Roth accounts rather than traditional IRAs or 401(k)s—Roth withdrawals are not taxable income.
For most retirees, a range of factors must be weighed when deciding the best age at which to claim Social Security benefits. Health often is a consideration, for example—claiming as soon as possible can make sense for someone who has life-threatening health problems. But, for the older spouse, one claiming decision usually is the best—and that is to wait.
What to do: If you’re significantly older than your spouse and you earned substantially more during your career—the older spouse typically is the higher earner in age-gap marriages—you almost certainly should wait to claim until your benefits reach their maximum at age 70. It’s among the best ways to reduce the odds that your younger spouse will outlive her retirement savings. After your death, your widow likely will be eligible to claim a survivor’s benefit equal in size to the benefit you had been receiving—the larger your benefit, the larger your widow’s survivor’s benefit. Maximizing Social Security survivor benefits is a key consideration for the higher-earning partner in any marriage, but it’s especially important in age-gap relationships, where the widow is statistically likely to have to finance many years of retirement after the older spouse has passed.
Also: The younger spouse could face an important Social Security–claiming decision. If she has not yet reached full retirement age when her older spouse dies, then claiming a survivor benefit immediately would result in reduced monthly benefits. The better option often is for this younger, lower-earning spouse to claim a benefit based on her own earning record as soon as she is eligible to do so, then switch to a survivor benefit upon reaching her own full retirement age.
But if the younger spouse was the higher earner, the better strategy could be to claim the survivor benefit as soon as she is eligible, then switch to her own benefit at age 70.
When the older spouse has a pension, choosing between that pension’s payment options may present a dilemma—is it better to select single life or joint-and-survivor? The latter ensures that the pension will provide the younger spouse with a secure source of retirement income even after the older spouse has passed away…but because pension payouts are calculated based on recipients’ projected lifespans, selecting joint-and-survivor is likely to substantially lower monthly payments for someone who has a much younger spouse.
What to do: A fee-only financial planner can run the numbers and help you compare your pension options. One sometimes overlooked option: Select the higher monthly payments offered by a pension’s single-life option…but also purchase a life insurance policy on the older spouse naming the younger spouse as beneficiary to ensure that the younger spouse has sufficient retirement assets. This strategy sometimes produces better results than selecting a pension’s joint-and-survivor option—but only when the older spouse is in good enough health to qualify for a life insurance policy with appealing rates.
Nursing homes can cost upward of $100,000 per year—that massive expense can burn through a couple’s retirement savings. When retirees can no longer afford ongoing nursing home bills, they typically turn to Medicaid to pick up the tab—but Medicaid won’t pay nursing home bills until the retirees’ assets are almost entirely depleted. If the Medicaid recipient is married, there are provisions—called the Community Spouse Resource Allowance—that can allow his spouse to keep the family home plus a modest amount of savings and income, but this “community spouse” likely will end up in greatly reduced financial circumstances. And when a Medicaid recipient has a much younger spouse, that younger spouse might be left with many years of retirement remaining and extremely limited financial resources to pay for it.
What to do: To avoid this risk, age-gap couples often are advised to purchase long-term-care insurance (LTCI)…which is fine advice if you can afford LTCI. But many couples can’t fit this expensive coverage into their budgets.
Another strategy: “Self-insure” by setting aside $300,000 to $500,000 of retirement savings to pay the bills if a long nursing home stay is needed…but this, too, requires financial resources that many couples lack.
Age-gap couples who cannot afford either of those options can at least reduce the odds that this younger spouse will end up impoverished by maximizing the Social Security, pension and/or life insurance benefits that the younger spouse will receive after the older one’s death.
If you have money in tax-advantaged retirement accounts such as traditional IRAs or traditional 401(k)s, you likely will have to start removing that money no later than the year in which you turn 73 or early the following year. But if your spouse is 10 or more years younger than you, these required withdrawals will be smaller than those faced by most retirees.
What to do: If your spouse is at least a decade younger than you, use Table II, “Joint Life and Last Survivor Expectancy,” from IRS publication 590-B, Distributions from Individual Retirement Arrangements, available at IRS.gov, to calculate your RMDs. Table II’s withdrawal rates are lower than the withdrawal rates in the standard table, leaving you extra retirement income- and tax-planning flexibility. But beware—if your investment company calculates your RMDs for you, they might use the standard RMD table by default. Contact them to confirm that they have used Table II if you qualify to use it.
If the younger spouse in an age-gap marriage retires earlier than normal, as is common, then the couple must plan to finance a longer-than-normal retirement. While there’s a good chance that only one spouse will be alive for a significant portion of that extended retirement, don’t expect that to cut your expenses in half—solo retirees’ expenses typically are 70% to 75% of those of retired couples.
What to do: If the plan is for the younger spouse to retire early, then both spouses must proceed as if they’re financing an extended retirement. If you can’t afford to fund a larger-than-normal retirement nest egg and don’t want to push back your retirement date, the best solution might be to significantly pare back your retirement expenses, perhaps by trimming travel plans or downsizing to a more economical home.
Age gaps themselves don’t create estate-plan complications. Rather, it’s the fact that many age-gap marriages are not first marriages and the older spouse often has children from a prior marriage. This leads to conflicting goals—the older spouse wants his estate plan to ensure that the younger spouse is financially stable in old age…but if the older spouse leaves the estate outright to the younger spouse, that younger spouse might not later leave whatever remains to the older spouse’s children.
What to do: The older spouse could have a trust created that provides financial support to the younger spouse, then passes remaining assets to the older spouse’s kids.
