Differences in age take extra account of when you and your loved one are planning to retire. If one spouse is much younger, the standard counseling may not work for couples with age differences.
Early retirement for a younger spouse can be very expensive, and ensuring that this partner will have sufficient income to sustain his or her entire life is a crucial aspect of retirement planning for these couples.
There are several things to keep in mind for spouses born years, if not decades apart, when it comes to retirement planning.
When should you retire?
It may sound simple, but the more you earn during your working years, the better you and your spouse will be when the time comes to retire. If you can work past the typical retirement age, any additional income you can earn now will increase what you want later.
If investing is part of building your nest egg, experts agree that switching to a more equity-based portfolio while keeping expenses low is the best plan for growth.
The younger spouse may also want to work a few more years. With a longer work history and (hopefully) higher pay, some younger spouses may continue to collect a steady income to improve their financial situation and add to their employer-sponsored pensions or pension plans.
Adjust your consumption
A frequently used rule of thumb for pension expenses is known as the 4% rule. You add up all your investments and deduct 4% of the total amount during your first year of retirement. In subsequent years, adjust the dollar amount you raise to take inflation into account.
With a younger spouse in the picture and the longer timeline a couple will have together, a drop to 3% or lower is recommended if you can afford it.
Social security payments
Social security is designed to support workers and their families by providing a guaranteed source of life income for those who meet certain criteria. As such, it is an important piece in your retirement planning puzzle.
You can start receiving your social pension benefits already at the age of 62. However, you are entitled to full benefits when you reach your full retirement age. If you postpone the payment of your benefits from your full retirement age to 70 years, your benefit amount will increase. If you start receiving unemployment benefits early, your unemployment benefits will be reduced by a small percentage for each month before your full retirement age. If you do not need the money early and expect to live a long life, hold on as long as you can.
Exemption for RMD withdrawal
Your required minimum allocation (RMD) is the minimum amount you must withdraw from your pension accounts each year. You should generally start taking payments from your IRA or pension plan account when you reach the age of 72 (70 ½ if you reach 70 ½ before 1 January 2020).
However, if your spouse is more than 10 years younger and you are a beneficiary, you can deduct less of a required minimum allocation (RMD) from your IRAs and retirement accounts by using the IRS’s common lifetime table.
Most pension schemes push for a lump sum when you retire. However, with an age difference between partners, you should consider taking the 100% maximum joint and survivor annuity option. The primary benefit of owning a joint and survivors’ annuity is the guarantee that the payments will last for the rest of the annuity owner’s life and the other person’s life.
Because the other person is an annuity recipient, as opposed to a beneficiary, the time frame for the payment will most likely be longer and therefore the tax liabilities will be spread over a longer period. Payments are lower and the lump sum option is not available should a major expense arise, but this option can provide reassurance, knowing that one’s spouse will have a reliable income when they are gone.
Factor in healthcare
The cost of health coverage is another factor that can dictate when you retire. Sticking to a performance-enhancing job before reaching the Medicare-eligible age of 65 should not be underestimated. If you find that you do not have enough savings, you can buy a long-term care insurance for the younger spouse. Prizes can be high, but it can be worth it, even if it only covers part of your needs.
Retirement is an essential marker in one’s life, so planning it can be complex. Adding a younger partner to the mix can add another challenging layer to your plans. It is important to compare priorities and potential costs, do your research and consult a financial planning expert. Once you understand what you both value, you can identify which elements resonate and which may require compromise.
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This article was originally published on GOBankingRates.com: Social security: Do I need to plan retirement differently if my spouse is significantly younger?