Retirement planning can be challenging for any couple but incredibly challenging for couples with a significant age gap. This is because the older partner may retire earlier than the younger partner and have different financial goals and needs. With careful planning and communication, couples can create a retirement plan that meets the needs of both partners.
Planning for Retirement When There's a Significant Age Gap
1. Consider Future Work Plans for Both
Scott Krager, Founder of Tubesplit.com, states that you should consider the following questions: Is the younger person in the relationship going to keep working until they are older, or will both people in the relationship stop working?
Scott mentions, "If the younger person is going to keep working, planning for the older individual's retirement is key. If both are going to stop working, you need to plan for your own retirement and the other person's if they are younger. This will ensure that both of you are in a good financial position for the rest of your lives."
Couples can also consider working part-time after retirement to supplement their income and stay active. When one spouse continues to work, it can become a delicate balance between trying to interact with the non-working spouse and work. Working part-time in retirement can give the older spouse a sense of purpose and make them feel like they are continuing to contribute to society and the household's finances.
2. Prioritize Estate Planning
According to Lorien Strydom, Executive Country Manager for Financer.com, estate planning takes on a unique significance when there's a significant age gap in a relationship. From my personal experience, I've seen couples navigate this intricacy. For instance, one of my close friends, considerably younger than her spouse, faced this.
In their retirement planning, they realized that the older partner might pass away while the younger one could still have several active years ahead. They had to consider the financial security of the surviving partner.
Consequently, they put a robust estate plan in place to ensure the younger partner's financial stability. This included life insurance policies, the careful designation of beneficiaries, and an established trust to ensure smooth asset transfer. So, when there's a significant age difference, it's crucial to plan and create a comprehensive estate plan to ensure the financial well-being of the surviving partner.
How do you prioritize estate planning?
Seek professional Help
Review your plan regularly
Communicate with your spouse
Determine who your beneficiaries will be
3. Discuss Death & Dying
Brian Porter, CTO of Dream Home Studio, says that if there's a significant age gap in your relationship, you must discuss what would happen if the older person happened to get sick or even pass away. It is a complicated conversation to have, but it should be considered.
Owning a home, paying a mortgage, and maintaining that space can be difficult for one person to do, so a plan should be in place. If the older person passes, it might be hard for the other person to continue with a smaller income, so figuring out a plan will allow them to live comfortably without going backward.
It's a tough conversation, but it has to be done, especially if the older person in the relationship is getting up there in years, but the younger person has many years ahead to plan for.
4. Address Retirement Timeline Differences
Couples should be realistic about their financial resources in retirement and remember to be flexible when things don't go according to plan. Hosh Amishave, Founder of Breachsense, says you should consider the difference in retirement timelines when there is a significant age gap is important. The older partner may need to plan for retirement sooner, while the younger partner has more time to save and plan. This can affect retirement planning in various ways, such as prioritizing retirement savings, considering higher-risk investments, and planning for increased healthcare costs.
To address these concerns, couples should communicate openly and work together to develop a retirement plan that takes into account their unique financial considerations.
5. Focus on the Younger Partner's Needs
It's essential to be realistic about your retirement age. Anirban Saha, Founder of MrPlanter, says that couples with significant age gaps should consider the long-term financial implications of retirement planning. A significantly older partner might have to retire earlier, reducing the overall nest egg. In comparison, a younger partner may need to continue working longer to finance their own retirement (and lost income).
Since women tend to outlive men, the situation is particularly precarious for older men who retire with younger partners. Hence, it's crucial to strategize not based on how long the older partner should work but on how their savings should be arranged to support the younger spouse in retirement.
6. Plan Based on Life Expectancy
The Social Security Administration creates life expectancy tables based on the probability of an individual's death based on their current age. In the 2023 Trustees Report, a 40-year-old woman is expected to live until 81. A 55-year-old man is expected to live until the age of 82. Assuming all things are equal, that will leave the younger spouse alone for 14 years if her husband passes away.
Gabriel Bogner, Co-founder of Mate Fertility, shares that one way to make sure that both parties are taken care of is by considering the life expectancy of each partner. Planning for retirement should consider how long each partner is likely to be alive, as this will affect any financial arrangements that are made. It's also important to consider how the age difference may impact incomes and the ability to save for retirement.
If one partner is significantly older, they may already have a pension or other savings that provide a secure income in retirement. On the other hand, the younger partner should plan to save as much as possible now for their later years. It's a tough conversation, but discussing how to share resources in the future is a critical aspect of planning for retirement with a big age gap.
7. Navigating Healthcare Costs
According to Dr. Willy Portier, Co-founder of Concerty, long-term care and health insurance costs are significant financial considerations that couples with big age gaps should consider when planning for retirement. Medical expenses are bound to soar for the older partner as they age, and the cost of health insurance for this individual will also go up. It might also reach a point when the older partner may need long-term care, which is also quite expensive.
Here are a few healthcare options available to retirees.
Medicare: Medicare is a federal health insurance program for people aged 65 and older and those with certain disabilities. When you or your spouse turn 65, they can enroll in Medicare before they officially retire.
Medicaid: Medicaid is a joint federal-state health insurance program for low-income individuals and families. Medicaid eligibility is based on income and assets and varies by state.
Retiree health insurance: Some employers offer retiree health insurance to their employees after they retire. Retiree health insurance can be a valuable benefit, but it is important to understand enrollment and disenrollment criteria before retiring.
Health insurance through the Affordable Care Act (ACA) marketplace: The ACA marketplace offers a variety of plans, including plans specifically designed for people aged 50 and older.
COBRA: After one spouse retires, they may be eligible for COBRA under their prior employer's plan for up to 18 months after their employment ends. This can help bridge the healthcare gap.
Enrolling in the working spouses plan: If one spouse is still working and the other is not eligible for any of the options above, the retired spouse can potentially enroll in the working spouses plan due to a life event change.
You can also consider establishing a rainy day fund. A rainy day fund for health insurance is a savings account to pay for unexpected medical expenses. Ian Wright, Managing Director of Business Financing, states that "despite many couples keeping a "rainy day fund" for the rising cost of healthcare, it's often understated just how important proper insurance and budgeting for healthcare-related matters are, particularly in relationships with a significant age gap."
A few things to keep in mind when you are establishing your rainy day fund for health insurance are:
How much should you save?
Where should you save your money?
How much should you contribute, and how often?
Do you have an HSA that you could use in retirement?
Ultimately, with careful planning and communication, age-gap couples can create a retirement plan that meets the needs of both partners and ensures a secure financial future.