How Couples With an Age Gap Should Plan for Retirement

Key Takeaways

• Enlarge your Social Security benefits over both lifetimes.
• Take smaller portfolio withdrawals and maintain a higher equity allocation.
• Some age-gap couples can benefit from smaller required minimum distributions.
• Budget for healthcare coverage for the spouse who may not be Medicare-eligible.
• Build a long-term care plan for the younger partner.

Susan Dziubinski: Hello, I’m Susan Dziubinski. Welcome to Retirement Planning for Real Life. When partners are many years apart in age, retirement planning becomes more complex—from deciding when each person should retire to coordinating Social Security and healthcare. Here to discuss the ins and outs of retirement planning for these couples is Christine Benz. Christine is Morningstar’s director of personal finance and retirement planning. She’s also the co-host of The Long View podcast and author of How to Retire: 20 Lessons for a Happy, Successful and Wealthy Retirement.

Great to see you, Christine.

Christine Benz: Good to see you too, Susan.

Dziubinski: Tell us a little bit about some of the data. How common is it for married couples to have, say, five years or more of an age gap?

Benz: It’s not all that common, Susan. When we look at the data, most married couples in the US have an age gap between zero and three years, and then very large age gaps are much less common. A 10-year age gap is about 8% of married couples, and a 20-year age gap is about 1% of married couples. One interesting dimension is that in North America, it’s much more common for couples to be similarly aged than is the case in the rest of the world.

Social Security Claiming Strategies for Couples With an Age Gap

Dziubinski: That’s interesting. OK, so let’s talk a little bit about retirement planning considerations if you do have an age gap. Let’s start with Social Security. We talk a lot about Social Security and the importance of your claiming strategy. Why is this one so crucial for those couples that have an age gap?

Benz: Yeah, the name of the game here is to enlarge benefits over both of your lifetimes. A very common profile of couples where there is a big age gap is where the older partner has also been the higher income earner over their career. In that case, it can often make sense for that older partner to delay Social Security filing, even though we all like the idea of income coming in the door right after retirement. If you can delay up until age 70, the benefit is that your younger partner will have that higher benefit over that longer life expectancy. It’s a good reason for couples to investigate this decision as a couple, and in many cases, the right answer for that higher earner, older partner will be to delay.

Portfolio Matters: The Younger Partner Changes the Math

Dziubinski: OK. What about a portfolio strategy when you have a five-year or more age difference? Should that asset allocation be different?

Benz: Well, you’re thinking about planning for the longest life expectancy. Say for example, you’ve got a 55-year-old and a 65-year-old who are both embarking on retirement. Well, the bad news is you should probably plan for a 40-year time horizon, not that 30-year time horizon that we might tell the 65-year-old to plan for. You’ve got a longer time horizon, which argues for a lower withdrawal rate—hate to break it to you, but if you’re both retiring at the same time, that is—and then it also would argue for having more equity exposure in the portfolio. Of course you’d want those safer buckets in the portfolio, the cash and the short- and intermediate-term bond components, but because of that longer life expectancy, because of the headwind of inflation, you need more growth potential in that portfolio. So, all else being equal, you need a higher equity allocation.

RMDs: Good News for Some Age-Gap Couples

Dziubinski: Now, you also say that couples with an age gap of say 10 years or greater should also take a different approach to required minimum distributions. Get into that.

Benz: Right. If your partner is the sole beneficiary of your IRA and they are more than 10 years younger, you use a separate table for calculating your required minimum distributions than the Uniform Lifetime Table. The good news, if you’re worried about taking out too much from your IRA, the worksheets that you would use to calculate your RMD amount would allow you to take a bit less because you are planning for that longer life expectancy. That’s kind of a good news story for older adults where there is that age gap.

Don’t Overlook the Healthcare Gap

Dziubinski: OK. Now, you also say that planning for healthcare in retirement is very important when you have that age gap, especially before you get to Medicare. Talk about that.

Benz: Right. It’s often a common motivation for couples of all ages to want to retire at kind of roughly the same time, but you do need to look at that healthcare coverage for the younger partner if they are not yet Medicare-eligible. It may be a reason that person should stay in the workforce or at least do your due diligence on, well, what will healthcare cost for this partner if they are no longer working and covered by a plan? What will we pay for healthcare? Just make sure that you are factoring that into your budgeting.

Make a Plan for Long-Term Care

Dziubinski: OK. Lastly, Christine, what about long-term care? What are the key considerations here if you’re in a couple with an age gap?

Benz: Yeah. If you are the younger partner, it’s absolutely essential that the couple together has a long-term-care plan for that person because the statistics would suggest that you will survive the older partner and then no one will be there to provide even that kind of basic level of care for you. If a couple has a tight budget and is trying to decide, “Well, who should we get insurance for?” Go for that younger spouse. Make sure that they have at least some level of coverage. Maybe there are ample funds and having some sort of a self-fund is appropriate for both partners, but make sure that you have a long-term-care plan for that younger partner.

Dziubinski: Well, Christine, thank you so much for your time today.

Benz: Thank you so much, Susan.

Dziubinski: If you’d like to hear more from Christine, be sure to sign up for her free weekly newsletter, Improving Your Finances. We provided a link to sign up below. Thanks for tuning in.