Retiring with a Younger Spouse? Here's What You Need to Know - Root Financial

When there’s an age gap between you and your spouse, there are a number of complexities to navigate in retirement. This post explores the unique planning points you need to consider in that scenario. I walk through a case study of Fred and Lisa, a couple facing the challenges and opportunities presented by their age difference.

Meet Fred and Lisa: A Unique Retirement Dilemma

Fred, at 64, is approaching retirement, eager to make the most of his golden years. However, Lisa is 53, which is a significant age gap. They find themselves grappling with the intricacies of planning a future that aligns with both their aspirations.

Fred’s primary concern is not only ensuring a comfortable retirement for himself but also safeguarding Lisa’s financial future. The couple envisions a retirement filled with travel and shared experiences, acknowledging the precious gift of the time they have together.

Lisa, equally eager to enjoy her retirement, faces the challenge of balancing her passion for work, the need to plan for the future, and the desire to enjoy retirement time with Fred. The couple is confronted with financial questions, including the impact of the age gap on Social Security benefits, investment strategies, cash flow management, and addressing personal goals for the years ahead.

Goals and Challenges: Unpacking the Financial Landscape

To kickstart their retirement planning, Fred and Lisa outlined their goals:

  • Retirement Ages: Fred aims to retire at 67, while Lisa plans to retire at 65.
  • Budgeting: The couple identified a core monthly expense of $5,000, excluding healthcare and additional travel plans.
  • Healthcare Costs: Anticipating healthcare expenses before and after Medicare, they budgeted for insurance costs.
  • Long-Term Care: Acknowledging the potential impact of an age gap, they factored in the cost of long-term care, focusing on how it could affect the surviving spouse.
  • Travel Plans: Recognizing the importance of making the most of their initial retirement years, they allocated extra funds for travel, particularly in the first decade.

Social Security Strategy: Maximizing Benefits for Both

Understanding the significance of a well-crafted Social Security strategy, Fred and Lisa’s Social Security strategy was based on the following:

  • Fred aimed to maximize his benefit by waiting until age 70, not just for personal income but also to secure a higher survivor benefit for Lisa.
  • Lisa, considering the age gap, opted to collect her benefit at 65, aligning with her retirement plans and factoring in the potential switch to a survivor benefit.

Investment Allocation: Tailoring Portfolios to Time Horizons

A crucial aspect of their planning was aligning investment strategies with their unique time horizons:

  • Fred’s 401k, being needed sooner, had an aggressive 100% stock allocation, projecting a 9% return.
  • Lisa’s 401k, with a longer time horizon, had a more balanced 45% stock and 55% bond allocation.

Retirement Cash Flows: Balancing Income and Expenses

Examining their retirement cash flows revealed the interplay of income sources and expenses:

  • Salary, Social Security, and pension constituted their income streams.
  • Living expenses, healthcare costs, and travel goals formed their planned outflows.
  • A comprehensive view illustrated periods of excess and shortfalls, highlighting reliance on portfolio assets during specific years.

Flexible Retirement Scenarios: Maximizing Time Together

The couple explored various retirement scenarios, adjusting retirement ages and work plans to strike a balance between present enjoyment and future security:

  • Lisa considered retiring at different ages, with each adjustment impacting their portfolio but allowing for more time together.
  • Negotiating a phased retirement plan for Lisa provided a compromise between continuing meaningful work and gradually transitioning into full retirement.

Portfolio Sustainability: Ensuring Long-Term Financial Security

Analyzing withdrawal rates and projected portfolio balances reassured Fred and Lisa about their long-term financial security:

  • Short-term spikes in withdrawals, especially for potential long-term care costs, were well within sustainable limits.
  • The projected portfolio continued growing, underscoring the viability of their comprehensive retirement plan.

Fred and Lisa’s journey exemplifies the importance of a personalized approach to retirement planning, especially when an age gap is involved. By addressing unique challenges, understanding individual goals, and optimizing strategies for Social Security, investments, and flexible retirement scenarios, the couple crafted a plan that balances enjoying the present while safeguarding the future.

Consider consulting a financial advisor to tailor a plan that aligns with your specific circumstances, goals, and aspirations. Planning for retirement is not just about numbers; it’s about ensuring you live the life you’ve envisioned.

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