I’ve worked with several couples with very different birthdates. This isn’t good or bad – as they say, the heart wants what it wants. Still, the financial planning considerations are a little different than for people who marry someone closer to their own age. So, here are five things to think about regarding financial planning for a younger spouse.
1) Plan for a long retirement.
The most common mistake we see when a couple’s ages are several years apart is not being prepared for a very long retirement. It’s natural to want to retire and spend time together when the older spouse retires, but that means the younger spouse (often the woman with a longer life expectancy) could be living in retirement for 40 or more years. That is a very long time to live just on savings, especially if some of the couple’s wealth will be held in reserve for others (favored charities, children from a prior marriage, etc.). We’ll frequently advise the older of the two to consider working longer; perhaps retiring at 70 instead of 65 in order to better fund the future living expenses of the survivor.
In addition, retirement income sources like pension and annuity payments will be more spread out (the same amount will be paid over a longer time, resulting in lower monthly income) when joint and survivor options are chosen. It’s critical to select payment of these retirement sources over both lives, not just the older of the couple, in order to maintain the standard of living of the survivor.
2) Delaying Social Security is critical.
Most people jump at the opportunity to begin Social Security payments as soon as they are available. However, with a significantly younger spouse who may be receiving survivor benefits for 40 years or more, the longer you can delay taking your Social Security payments the better off the survivor will be. Waiting until age 70 to start Social Security will significantly increase your joint retirement income and the spouse’s survivor benefits for the rest of your (and your spouse’s) life. [See our related article: Claiming Social Security Later May Optimize Your Benefits]
3) College expenses and education funding.
With a later marriage generally comes later education expenses, at least for the older of the couple. This often means that instead of building up savings in your late 50s, you’ve only just started to write the really big checks for your kids. Saving early is an option, but for most people planning to work longer may be more realistic.
4) Estate planning can be much more complicated.
Estate planning is rarely simple, but when a couple with a significant age difference is planning for the management of their estate, some additional complications can be introduced. For example, there may be children from prior marriages. Often the parent of these children will want to ensure that their ‘share’ of any inheritance is protected. Frequently, assets accumulated before or even during a second marriage may not pass directly to a survivor, but may have some significant strings attached. With a much older spouse, incapacity planning and the management of retirement accounts also take on greater urgency.
5) Healthcare costs are more spread out.
If you both retire when the older of the couple turns 65 and starts Medicare, then you will be paying out-of-pocket for private insurance which is generally more expensive than employer provided benefits. Moreover, couples who are similar age can move together into retirement communities or assisted living later in life and share some of that cost. This may not be an attractive option for a much younger spouse, so in-home health care may become necessary. Another (more expensive) option is for one spouse to be in a nursing facility while the other maintains the original home.
These are just some of the things you will need to consider when you choose an older (or younger) spouse. Please contact our office for one of our Certified Financial Planner® Practitioners to help guide you with financial planning for a younger spouse.