US couples with an age gap of more than 10 years advised to plan for two retirements
In the United States, married couples with an age gap of more than 10 years may need a larger retirement fund, as they have to coordinate two different timelines for retirement and spending. As MarketWatch reports, financial planner John Ulin calls this the problem of “two clocks”: a family has one shared balance but two retirement trajectories.
According to the US Census Bureau, about 8% of opposite-sex couples in the country are couples in which one spouse is 55 and the other is 65. One of the first questions for such people is whether they can retire at the same time. Health insurance becomes an important factor: the older spouse may be eligible for Medicare, while the younger one still needs marketplace insurance coverage.
If the older partner has retirement benefits that cover the period until the younger one turns 65, the couple can retire at the same time. Otherwise, they have to pay for the younger partner’s health insurance or consider an option in which that partner works longer.
Benefits and taxes
Financial advisers also suggest taking into account a Social Security claiming strategy. If the older partner has a higher benefit, delaying the claim until age 70 may increase the benefit received by the surviving partner. Adviser Chris Etter recommends assessing the younger partner’s age when the older partner reaches the break-even point for delayed claiming. The article notes that this usually occurs between the ages of 78 and 81.
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A separate issue is the change in tax status after the death of one spouse. The surviving partner moves from filing jointly to single taxpayer status, even if their income has not changed. Adviser Matthew Chancey recommends considering in advance converting funds from tax-deferred accounts into Roth accounts during periods when the couple is in a lower income tax bracket.
Protecting the younger partner
With a significant age difference, the cost of medical care for the older partner may substantially reduce the resources left for the younger partner’s later years. Adviser Rob Schultz draws attention to how rights to assets are titled, particularly in states with a community property regime, as this may affect capital gains tax.
Another approach is a separate plan for the partner who survives the other. It should take into account one Social Security benefit, higher taxes, and a possible reduction in liquidity. For some couples, this means spending more on travel in the first years of retirement, while the older partner can still travel actively, but without compromising the younger partner’s long-term financial security.
