Financial Planning for a Couple’s Age Gap
Couples usually don’t retire at the same time when they have an ‘age gap’ between them. An age gap relationship is one where there is eleven or more year’s age difference between them. Age gap relationships are becoming more common as people are choosing to marry later in life, remarry or start a life-partnership with someone significantly younger.
According to the latest study from the National Center for Health Studies (2017 statistics), the average woman is living 81.1 years compared to 74 years in 1960; the average man is living 76.1 years compared to 67 years in 1960. The increase in life expectancy is helping to change the age differences in many couples, making financial planning even more critical.
In age gap relationships one member continues to work for a decade or longer than the other. The drawing of retirement assets and social security income earlier for one member, coupled with differing longevity factors presents a planning challenge compared to other couples.
Age gap couples may have up to a half-generation between their ages and should consider planning for two different scenarios to reflect their age difference. These couples shouldn’t rely on a financial plan based only on the older member’s financial information and longevity factors. Some things to consider for these couples:
The older member may want to delay taking Social Security benefits until their full retirement age unless they have health issues. Delaying the benefits of the older member will benefit both if the older member was the higher income earner.
Health insurance coverage will be impacted if the older member carried the health insurance and goes on Medicare, requiring the younger one to find new insurance.
Basing the financial plan on the partner with the longer life expectancy will help the combined portfolio last over a longer time horizon. Both expected retirement dates should be included even if they are a decade or more apart.
Considering the tax consequences for drawing down retirement assets at two different starting dates is important. With one member continuing to work, they should maximize their pre-tax retirement account contributions to off-set moving the couple into a higher income tax bracket. Most retirees have a higher income tax consequence the first few years of their retirement.
If you’re in an age-gap relationship and need guidance in planning for your retirement start-date gap, now is a great time to get started on your unique financial plan, so please don’t hesitate to contact me.
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