It is easy to generalize or even joke about couples with a significant age difference. But when it comes to strategic financial planning for the future, age gaps are no laughing matter. There are a lot of financial considerations for couples separated in age by 10 or more years. They first need an experienced advisor who will take the following into account when crafting a strategy to meet their individual needs.
1. Plan for Increased Longevity
Increased longevity is one major consideration for age-gap couples, especially when the older spouse is the primary earner. Their retirement nest egg needs to last beyond the typical 30-year retirement horizon. Couples in this scenario should plan either to save more during working years, or reduce their monthly spending in retirement.
2. Risk Profiling in Asset Allocation
Another concern is finding the appropriate asset allocation for all investment accounts. If the younger spouse is still working, and especially if they are the primary earner, the couple may be able to take more risk to help their assets last longer. Conversely, if the retiring spouse is the primary income earner, asset allocation may need to reflect a lower risk profile.
3. Determine Fixed Income Sources
Fixed income sources are critical in developing an optimal financial planning strategy. Choosing the correct pension option for a couple with a greater than ten-year age gap can have enormous impact. Providing the younger spouse with a 100 percent joint and survivor option may be more appealing, even given the lower monthly payments.Most people know they must start withdrawing funds from their IRAs and 401(k)s when they turn 70.5. This is called the Required Minimum Distribution (RMD). But if a person turning 70.5 has a spousal beneficiary who is at least 10 years younger, their RMD is calculated based on a different IRS table with lower withdrawal requirements. This can be a great planning tool for a retiree who may not need the income from the retirement accounts right away.
Social Security planning becomes very important as well, since taking benefits too early could severely decrease spousal benefits throughout their lifetime. Often the best course of action is for the older spouse to wait until they are 70 to start receiving benefits. Social Security benefits grow at eight percent per year from full retirement age until age 70.
4. Anticipating Non-financial Issues
Last, but certainly not least, advisors should help clients visualize how their retirement should look from perspectives beyond the financial. For example, tension and resentment can arise if one spouse is working and the other is not, so it’s important to anticipate these issues in advance.
As people in society are living longer, there is a natural increase in the occurrence of age-gap relationships. Smart advisors can get out in front the growing trend by researching the associated challenges and helping clients avoid surprises as they embark on successful retirement.