Couples with a big age gap need more money - they have to plan for two retirements

By Beth Pinsker

These are the biggest issues to consider when there's more than a 10-year age difference

A big age difference in a couple means your retirement doesn't start at the same place.

You may call it an age-gap retirement or May-December planning - but when financial planner Jon Ulin helps couples who have a 10-year-plus age gap between spouses, he calls it a "two-clock problem."

"You're not planning one retirement, you're planning two timelines with one balance sheet," he said of a situation he sees often at his practice in Boca Raton, Fla.

This goes way beyond just a lifestyle issue where the younger spouse is ready for pickleball just as the other needs a walker to get to the bathroom. It takes careful financial planning and more saving, to make sure both spouses have the funds to maintain their lifestyles and pay for whatever care they may need as they age.

"The bottom line is that they need more money to retire than couples of a similar age," said financial adviser Josh Norris, who practices in Jackson, Miss.

Take a couple who are currently 55 and 65, which accounts for about 8% of opposite-sex couples in the U.S., according to the U.S. Census Bureau. One of the first questions they ask Ulin is whether they can afford to retire at the same time. There are a lot of considerations that go into this, but the obvious one at that age is health insurance, as one spouse needs market coverage and the other is eligible for Medicare. "It's the big swing factor," said Ulin.

If the older spouse has retiree benefits that bridge the gap for the younger spouse until they reach 65, then that can work - but if not, they have to pay for health coverage for the younger spouse.

"The alternative is having the younger spouse work another 10 years, which often sounds better on a spreadsheet than it does across the kitchen table," Ulin said.

Here are the other issues that advisers say need the most special consideration when couples have a big age difference.

Claiming Social Security

For married couples, Social Security strategy has to take both spouses into account. Kris Etter, an adviser based in Houston, asks his age-gap clients to think about how old the younger spouse will be when the older spouse hits the "break-even point" where they get more money by waiting to claim at 70 instead. (That's usually between ages 78 and 81.) Then the couple can do the math as to what the household benefits will be and what the survivor benefit would be if the older spouse died.

"If the older spouse has a higher benefit, I'll normally recommend they wait as long as possible, up to age 70, to maximize survivor benefits," said Matt Shumaker, an adviser based in Boston.

Avoiding the 'widow's tax'

There's a hard actuarial truth to age-gap planning - and that, in the polite words of adviser Matthew Chancey, is that "sooner or later, one of you is taxed as a single."

While not always the case, typically the older spouse dies first. But either way, the math is the same for the surviving spouse who switches from married filing jointly for taxes to filing single, but with the same income as before.

"Filing alone is expensive," said Chancey, the author of "Tax Alpha Solutions," and especially when it comes to the tax brackets involved. "It's the same nest egg, same house, [but] roughly half the shelter."

Chancey's solution for this is to think about Roth conversions, which move money out of tax-deferred accounts when your income-tax bracket is lowest and into an account where it will grow tax-free.

"The widow's tax isn't a tax on dying, it's a tax on filing alone," he said. "And the only time to fight it is while you're still filing together."

Leaving enough money for the younger spouse

With two retirement timelines, the biggest risk is that the couple will use up significant resources for healthcare for the older spouse, and there won't be enough left for the younger spouse to live on for the rest of their lifetime.

To counter this, adviser Rob Schultz in Encino, Calif., advises his clients to pay attention to the titling of assets, especially in community-property states. He wants to make sure the younger spouse gets a proper step-up in basis and pays less in capital-gains taxes on property and equity holdings.

"This ties into long-term care, where the primary residence is expected to be sold and downsizing occurs," Schultz said.

For others, it comes down to spending and timing, rather than just timing benefits. Patrick Huey, an adviser in Naples, Fla., has been working with a couple with a 15-year age gap who have been giving priority to travel now, while the older spouse is still able.

"That meant the plan had to support a front-loaded retirement lifestyle without jeopardizing the younger spouse's long-term security," said Huey. He helped them build what he called a "survivor plan," where there would be one Social Security check, more taxes and possibly less liquidity.

"That is where these couples often need the most help. They are balancing two very different risks at once: spending more earlier so they do not miss the healthiest years together, while also protecting the younger spouse from the financial realities that may come later."

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-Beth Pinsker

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