Asymmetrical Retirement for Spouses

Hey there and welcome to this week’s episode of the Her Retirement podcast. I am your host, Lynn Toomey. Welcome. This week. We are talking about retiring separately or together, and how spouses and partners really need to get on the same page as they make that decision, whether they should retire at the same time, or one retires. And the other continues to work. According to Catherine A. Edwards, from Rand corporation, an economist whose research includes retirement. She states that the term retirement is much more elastic than people think. Sometimes the spouse returns to work part-time or full-time after retiring, often cycling through various work arrangements before stopping permanently. So although someone may say they’re going to retire, one spouse says they’re going to retire. Sometimes they do end up returning to work. And you know, one important aspect of this is you can make a plan, a plan A, but sometimes you default to Plan B.

Retirement also may be less of a choice than it appears. An older worker may decide to retire by default, after a layoff. And there’s no new job offers or because a family member needs a caregiver. As a rule, people don’t talk much about retirement before it’s upon them. A 2018 Fidelity Investments survey found that 43% of 1600 people surveyed disagreed with their partner about the age to retire. Although that percentage decreased, the older people got with 51% of millennials, 44% of gen Xers, 33% of boomers disagreeing with their partner. Only 25% of same-sex couples disagreed about when to retire and money was another bone of contention. More than half at 54%. couldn’t agree about how much they should save to maintain their current lifestyle in retirement. So there’s lots of issues, lots of considerations. And this clearly points to the fact that people need to get on the same page, both mentally and financially.

They need to understand what the impact is going to be financially, mentally, lifestyle wise, and unless couples are the same age and in the same health, it usually makes more sense for one person to retire earlier. That can have both financial and relationship benefits. So let’s look at some considerations for people who do end up having a staggered retirement. First off the couple must have money dates, money dates that allow them to come together on a cohesive plan. Regardless if they are retiring together or not, the plan must be integrated. Even if they’ve kept their financial lives separate to date, it’s actually more than a money date. However, they need to ask themselves some tough questions about lifestyle planning as well. Like what do they want to do during their retirement? Whether it’s separate or together, how do they need and want their money to work for them presently and in retirement?

Are they on track with their retirement savings and investments? Have they done any planning and are they in agreement on most things? It’s probably nearly impossible to be an agreement on everything, but it’s a good goal to strive for. Let’s talk about some considerations on making that decision about who of the couple should retire first. Number one, the most important question is who’s happier with their job. The second question may be who’s earning more. However you order these questions depends on your personal situation. Perhaps it’s medically necessary for one to retire early. In that case, there’s not a lot of discussion. Number two, make sure you’ve run complete income scenarios like portfolio stress test to make sure your portfolio can make it in any market environment and make sure you do cash-flow projections prior to any retirement decisions, understanding your expenses and incomes, and therefore your cash flow, your plan should also include health care and life insurance analysis, as well as estate planning.

This is just to name a few components of a comprehensive retirement plan, which must be done, whether you plan to retire together or separately, Number three, the spouse or partner with the highest social security income should probably work as long as possible to get to full retirement age, which is 66 or later, depending upon your birth year, if possible. The reasoning behind this is that social security increases 8% a year along with a cost-of-living increase. This is also a great hedge against inflation. Number four, health insurance needs need to be considered as to who will cover the other spouse. And can it be done. If not yet, who is eligible for Medicare. And number five, another consideration is that are there any incentives with either employer like back-pay for PTO not taken or one-time chance for severance, matching 401k contributions, etc. It’s important if one retires before the other, that there is that upfront agreed to plan.

I can’t emphasize that enough. They both need to be fully committed on the emotional side of things. One partner could be resentful of the other who’s retired. There also has to be a money agreement between them so that the one not working doesn’t feel as though they don’t have their own money any longer. So here’s a few tips to avoid emotional distress by either partner. Number one, have a clear plan for when the second person will retire. Number two, each person must always know that they are retiring to have a purpose, have a plan for those 2000 hours or freed up time. I have a friend who recently retired without a plan and he said, financially, he and his wife are fine, but they don’t really have an idea of what they’re going to do. They’re kind of wandering around just thinking about what should we do with all our free time when in fact they are doing some travel, but beyond that, it’s kind of a mystery.

And I think they’re kind of looking at it as a kind of an exciting time, not knowing what the future holds kind of thing. Number three, plan some fun activities or travel in advance of their retirement dates so that you can celebrate the one who’s retiring together and then have a continued plan for the working spouse or partner to enjoy his or her time away from work. Number four, the working spouse will be busy and some days obviously tired and stressed. The non-working spouse may be bored or feeling lonely and forgotten for things the couple previously did together. Maybe they talked about work more because they were both working and they’ll no longer be having those conversations. All sorts of emotional things can come into play, pay attention to the emotional wellbeing of both partners and make sure you address it. Communication is key.

Number five, it’s important to keep your communications open. Talk about how you’re feeling throughout this process. It’s a difficult change. It’s a brand new phase of life. It’s important for the retired spouse, a partner, to be supportive of the working spouse partner and vice versa. Number six, you will want to discuss any change of responsibilities in the home like housekeeping, cooking, groceries, laundry, et cetera, discuss in advance so that you can make the most of your time together and apart. This is your most precious commodity. Don’t waste it. Number seven, perhaps you can look at some ways to downsize on costs. Have those discussions, have discussions about other big expenses prior to retirement and how those will be funded, having a new spending plan and again, know your cash flow.

Now let’s talk about some tips on coordinating your retirement plans. Number one, obtain an income and social security maximization report to determine your social security timing strategy. Number two, determine what your expenses will be in this hybrid scenario, i.e., spouse working one, not, and also need to have projections for deciding when the working spouse can retire. And what that combined drawing off of your portfolio for income purposes will look like. There’ll be some key decisions. If you have to turn on some income riders on some annuities or what your withdrawal plans going to look like from your portfolio, those types of things. Number three, if you have a pension, you need to figure out how that applies. What, what will the payout be? Can a life insurance policy replace the income of if, if life only payout is taken, know all the parameters, maybe the pension can be delayed for inflationary factors or is the pension a profit-sharing plan and only pays for a period of time. Let’s say 15 years.

And there’s no income after that. All of these considerations must be taken into mind and into your planning. Number four, tax planning is a key part of any retirement plan. You need to understand what is fully taxable, what is partially taxed, capital gains versus deferred income. And then what is tax-free income? So you have these three buckets of taxation, fully taxable, partially taxed and tax-free. How can you withdraw from your savings in the most tax efficient manner? And when do these withdrawals begin?  Tax planning is a huge part of your retirement planning. A portfolio can literally last five to 10 years longer, understanding how to be most efficient, how to mix the payout of these three different buckets and how to time the distribution from these buckets can save you a lot. Number five, have a will. And trust plan. You need to have a plan for death of one or both of the partners should one partner or spouse pass during this hybrid time of retirement, or once both are in retirement, what’s your plan lifestyle.

And money-wise next. I want to cover a quick case study from Investopedia on the benefits for one spouse to retire five years after the other spouse, a delay of five years by one is a hugely positive move for many couples who are just on the edge of having enough money saved for those who have a family history of longevity, or for those who simply need to work five additional years to get enough. So let’s meet Sally and Larry Griffin. They’re both 60 years old. They each earn an average of $40,000 per year during their working years, both come from families with longevity, and each expects to live to age 90, Larry and Sally both plan to retire at age 65 at their current rate of saving, the couple will have $300,000 of joint retirement assets. By that time, when each reaches full retirement age for their birth year, which is age 67, they will be entitled to full social security benefits.

The Griffin’s expect to receive just over $24,000 per year in retirement from their account with a depletion of assets by age 90, if they claim social security benefits at age 67, Larry and Sally can each expect an annual benefit of approximately $18,850. This would bring the total annual retirement income up to approximately $62,000, just under $62,000 per year. Uh, roughly 30% drop in income from their 80,000 pre-retirement income. But if Larry were to work another five years, he could step up his contributions to cumulate another $30,000 in his retirement plan and would draw on it for five fewer years. These five years can have a significant impact. If the Griffins are able to postpone any retirement plan distributions until Larry retires at 70, since he will still be earning a salary and Sally begins taking social security at age 67, they could reasonably expect to have a total of approximately $437,000 in retirement assets.

Larry will also get enhanced social security benefits of over $28,000 per year instead of the $18,850. If their investments continue to grow and they still deplete their assets at age 90, the total income retirement plan distributions would come to about $83,182 effectively replacing the income from their jobs until age 90. This example clearly illustrates the financial impact. That just a few more years of work can have on a couple’s retirement. The triple power of increased social security benefits increases retirement savings and the reduction of time over which to draw on those savings can mean the difference between a financially secure retirement and one that is marked by financial hardship. And I know for many people another five years sometimes seems impossible, for those that enjoy working, enjoy their job, enjoy their employer, enjoy their own business. Perhaps this is not a reach, but run those numbers.

See if you can pull out two years, three years, five years just putting in a little more time, what it can do for your comfort and your confidence in your peace of mind in retirement, that trade-off may be worth it to you, but make sure you give yourself the opportunity to make that decision. Okay. There’s lots of discussions and planning to be done when coordinating a quote. Hybrid retirement, I’m working, my spouse or partner has retired. The hybrid situation can work and it can be very beneficial for many people. There are some glitches. So you need to make sure you pay attention to those. Glitches in retirement represent many challenges, and especially for couples who need to make the decision when to pull the trigger. When couples have what is called an asymmetrical retirement, there’s obviously many emotional and financial benefits along with some risks that need to be considered carefully.

And remember, life happens and can change the best laid plans. It’s always, always important to have a Plan B. So it’s one thing to get people to do Plan A, because I think 85% of people don’t have a retirement plan. It’s another thing, another hoop to jump through, to get a Plan B, but I want you to have a plan A and a Plan B, and then I want you to seriously consider the impact of retiring separately, retirement together. One delaying a little longer than originally planned can be really important. So in closing ladies, it’s extremely, extremely important to get on the same page with your spouse or your partner before making any decisions. And here’s to getting her done, get that decision done, get that plan done. As always, if you and your spouse or partner need some assistance, a coach, a plan, a retirement income projection, whatever you need. Please reach out to me at . Thank you for listening to this week’s episode. And I look forward to chatting again next week.

Listen to the podcast episode here! 

Check out more podcast episodes here!

Comments are closed.