Who Goes First? For Couples, Retirement Is All About Timing
Most of us assume we'll retire at some point. The important question is when, and the answer can be different for everyone—even spouses.
Sure, some couples plan to retire together, but other times it makes more sense to stagger retirement dates. Having one spouse work longer often can help maximize retirement income or preserve health insurance. Other times retirement has less to do with finances and more to do with personal satisfaction. One spouse may be tired of the daily grind while the other still has career goals to accomplish.
And sometimes it's not really a choice. One spouse might leave the work force because of illness, injury, or unexpected job loss, but the other can't always follow immediately. "For some people, it's just not an economic reality," says Jason Parker of Parker Financial in Silverdale, Wash. "They just don't have enough money for both to retire."
Retirement timing usually boils down to dollars: Couples plan to retire when they've got enough to maintain the kind of lifestyle they want for as long as they expect to live. That number will be different for everyone, and how much couples need to save varies widely based on their ages, debts, lifestyles, monthly expenses, and even where they live.
One constant, though, is the time value of money, says Marta Nystrom, a certified retirement financial adviser in Santa Fe, N.M. As inflation drives up costs from year to year, couples need to recognize that they will need far more money 10 years from retirement just to maintain their status quo. The younger they are when they retire, the more inflation is going to affect them.
"If a couple needs $25,000 now, in 14 years they're going to need $70,000 just to stay level. And if they live into their 90s, now they may be looking at close to $140,000 a year to maintain," Nystrom says. "They need to have really frank discussions on how that's going to happen."
And sometimes that leads to a decision to have one spouse—often the higher breadwinner or a much-younger husband or wife—stay in the work force longer than the other.
Couples should not assume they have identical retirement ideals just because they have identical retirement plans.
Health insurance is another reason some couples stagger retirement. Medicare doesn't kick in until an individual reaches age 65. That means folks retiring before that need to come up with their own coverage, and few retirees have coverage from their former employers.
It is not an insignificant expense. According to the Towers-Watson Employer Survey on Purchasing Value in Health Care, an individual retiring before age 65 can expect to pay upward of $4,200 a year for single-only coverage. If both spouses retire, that price tag tops $8,400.
"A lot of people have never had to personally pay the premiums," Parker explains, noting that many employers either picked up the whole or a significant portion of the monthly or annual cost while retirees were working. "When they see how much money it is going to cost, even with high-deductible plans, it's kind of sticker shock."
For single seniors, Social Security election is primarily about timing. Elect earlier and get less money for a presumably longer period of time. Elect later and get more money for a shorter period of time.
For couples things get trickier, and there seem to be endless configurations of election and suspension strategies that enable couples to maximize their collective Social Security benefits. The gist is that individuals can elect a reduced Social Security benefit as early as age 62 or delay until age 70 for a maximum benefit. This can increase benefits by as much as 32%, Nystrom says.
The retired spouse can pick up more of the slack at home so that the working spouse's off-hours really are relaxing and rejuvenating.
There also are a few timing or "switching" strategies that allow couples to increase their overall Social Security payouts.
For example, if both the husband and wife worked, the husband might take a spousal benefit of half of his wife's Social Security amount at his full retirement age, and allow his own Social Security benefit to continue to grow up to age 70. At age 70, he might then switch to his own, higher, benefit. The strategy also could work in reverse.
The math is different for every couple depending on ages, earnings, and timing. The differences, though, can amount to tens of thousands of dollars. That is why couples should carefully consider all the possibilities so they can maximize their total Social Security benefit, Nystrom says.
"For deferring between the ages of 66 and 70, they're getting a guaranteed 8% increase plus a cost of living increase," she says. "Couples are going to increasingly utilize these switching strategies to maximize their joint lifetime benefit."
No shame in staggeringThere is nothing wrong in staggering retirement, whether to maximize retirement income or for personal reasons, Nystrom says.
The truth, she points out, is that retirement is an individual decision as much as it is a joint one. "Most of my clients don't retire at the same time," she says. "I generally don't see that causing friction."
Of course, it is a different situation when one wants to keep working because she loves her job than when one keeps working because she has the better insurance plan. That is why Nystrom says it is critical to make retirement decisions together.
If a couple needs $25,000 now, in 14 years that couple will need $70,000 just to stay level.
"Bad decisions will be made if you can't get both people in to talk about it and voice some of the feelings," she says.
Sometimes one spouse does stick it out longer, but the other one contributes by picking up more of the slack at home and taking on bill paying and personal financial management so that the working spouse's off-hours really are relaxing and rejuvenating. "Look for roles the nonworking spouse can fulfill," she says, "so it doesn't seem like that nonworking spouse is sitting around watching TV all day."
beyond the dollar and cents
While the numbers get the most attention, finances aren't the only factor in retirement decisions. Couples also need to have what Jack Stephens, a financial coach in San Antonio, calls the "expectation talk" to make sure they both have the same kind of retirement in mind. "Not being on the same page is a big problem," he says.
It may seem unlikely that a pair who agreed on most major life decisions would have different views about how to spend their golden years, but financial experts see it happen from time to time. One spouse may be dreaming of more time with extended family while the other wants to golf. One spouse may want to travel while the other wants to stay home and garden.
Couples should not assume that they have identical retirement ideals just because they have identical retirement plans. "These are discussions that need to take place," Nystrom says.
To help his clients, Parker has each spouse write out a purpose statement, to "really define what the next stage of life is going to look like," he says. Finding purpose is critical, he says, because it determines how much money and even how much time they need in retirement. "The money is just the tool that allows you to accomplish your goals and dreams."
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