Age-Defying Retirement Planning for May-December Couples
Age is just a number…unless you’re planning for retirement with a significant age difference.
May-December couples, as they are commonly referred to face the complexities of planning their golden years together. “May-December” signifies the contrast between someone in the prime of their life (spring) and someone in the later stages (winter). A Pew Research Center analysis found that among first-time marriages, 14% of couples have an age gap of at least six years, and 5% have a gap of 10 years or more. When it comes to second-time marriages, 20% of couples have an age difference of 10 years or more.
Sure, you and your partner may currently be in sync — building careers, nurturing children, cherishing wedded bliss. That is, until you aren’t. Everything might seem harmonious until the topic of retirement comes knocking.
In this blog post, we’ll explore the nuances of retirement planning for May-December couples. We’ll go over effective financial planning, maximizing retirement plans and benefits, navigating social security implications, and more.
Featured Topics:
- Establishing Financial Goals
- Balancing Retirement Contributions and Savings
- Early and Proactive Retirement Planning for a Successful Future
Establishing Financial Goals
Remember: You’re not just planning for yourself. Like other important decisions you make, you plan your financial future together. That’s why having open and honest conversations about financial goals early on is crucial. You may have different aspirations – for example, one partner might dream of an adventurous retirement full of travel, while the other may still be focused on their career. Alternatively, one partner may want to retire early, while the other prefers to continue working. These conversations are essential for both partners to be on the same page.
Here are some steps to help you effectively establish your financial goals:
1. Discussing individual retirement goals
Begin by discussing and understanding each partner’s individual retirement goals. Explore aspirations, priorities, and financial milestones. Think about what age you’d like to retire, what kind of life you want to live then, where you want to travel, what hobbies you want to pursue, and what you’re interested in. Take the time to listen actively and understand each other’s goals and aspirations. Respecting each other’s goals as you seek common ground is important.
2. Identifying shared financial objectives
3. Considering age and life expectancy differences
Establish financial goals that account for age and life expectancy differences. Consider the potential for one partner to retire earlier than the other, which can impact income sources and planning. Additionally, take into account variations in life expectancy when determining things like retirement age and designing appropriate healthcare coverage.
Balancing Retirement Contributions and Savings
If you’ve had “the talk,” you’ve most likely touched on topics like income disparities, differing life stages, and unique retirement goals. Effectively balancing retirement contributions and savings requires careful assessment, maximization of available benefits, understanding social security strategies, and prioritizing pre-retirement financial planning.
Assessing Income Disparity and Contribution Strategies
Assessing the income disparity between partners involves understanding each person’s income, assets, and financial obligations. Often, you’ll find that the older partner may already have significant retirement savings while the younger partner is still building their career and has less money saved. Based on your assessment, you can evaluate different contribution strategies. You can equalize retirement contributions based on a percentage of income. For example, each partner can contribute a set rate (e.g., 10%) of their income towards retirement savings. The wealthier partner’s contribution will be higher in absolute terms. Still, both partners will be contributing proportionally based on their income levels.
Adjusting contribution strategies based on individual circumstances and needs may also be necessary. For instance, if the younger partner needs more disposable income to invest in their career growth or education, they can contribute a smaller percentage towards retirement savings. Meanwhile, the wealthier partner can contribute more, considering their ability to save more without sacrificing their financial well-being.
Finally, look beyond retirement contributions and consider each partner’s overall financial contributions to the household. If one partner has a higher income, they may take on a larger portion of the household expenses. This can create more disposable income for the other partner, allowing them to contribute more towards retirement savings.
Maximizing Retirement Plans and Benefits Available
Take full advantage of the retirement plans and benefits available. Familiarize yourself with the different retirement plans available, such as 401(k)s, IRAs (Traditional or Roth), and employer-sponsored plans. Each plan has unique features, contribution limits, investment options, and tax implications. Know the eligibility requirements and determine which plans suit you and your partner.
Consider whether making traditional (pre-tax) or Roth (after-tax) contributions is more advantageous for your situation. Traditional contributions provide an immediate tax deduction, reducing your taxable income. In contrast, Roth contributions allow tax-free withdrawals in retirement. Assess your current tax bracket, projected future tax rates, and individual circumstances to determine the most suitable approach, considering potential tax diversification strategies.
Take advantage of catch-up contributions if you or your partner are 50 or above. SECURE 2.0 increases the catch-up contribution limits, allowing you to contribute even more to your retirement accounts. Effective in 2023, you can contribute an extra $7,500 per year (previously $6,500) on top of the regular limit for 401(k)s and similar employer-sponsored plans. Furthermore, from ages 60 through 63, the allowable catch-up contribution will be the higher of either $10,000 (inflation-adjusted) or 150% of the regular catch-up limit, starting in 2025. Additionally, individuals earning over $145,000 (inflation-adjusted) can now make catch-up contributions to a Roth account, offering the potential for tax-free withdrawals, interest earnings, dividends, and capital gains in the future.
This additional contribution amount will be adjusted for inflation in the following years. Download the MBE CPAs App today and stay informed about catch-up contribution limits and other valuable retirement updates!
Claiming Social Security Benefits
The Social Security Administration provides benefits for both the worker and their spouse. However, claiming Social Security can be trickier for couples with a significant age gap, requiring careful consideration of their unique circumstances.
1. Spousal Benefits
The spousal benefit is based on the lower-earning spouse’s work record. It can provide up to 50% of the higher-earning spouse’s benefit. However, the spousal benefit is only available if the lower-earning spouse has not yet claimed their Social Security benefit. The earliest age at which a spouse can claim a spousal benefit is 62, while the maximum benefit is available at full retirement age (FRA).
2. Survivor Benefits
Another benefit that May-December couples need to consider is survivor benefits. Survivor benefits can provide income for a surviving spouse after the death of their partner. The surviving spouse can receive up to 100% of the deceased partner’s benefit if they wait until their full retirement age to claim it. However, if the surviving spouse claims the benefit early, their monthly benefit will be reduced. This could have long-term implications for their retirement income.
3. Optimal Claiming Age
The optimal claiming age for Social Security largely depends on the couple’s financial situation and goals. Understanding the impact of claiming benefits early versus delaying them is crucial, as the timing can significantly impact a couple’s retirement income over the long term. Delaying benefits until after the FRA can result in higher monthly benefits for the rest of the retiree’s life and provide increased survivor benefits to a surviving spouse.
When claiming Social Security benefits, couples should consult a financial advisor specializing in retirement planning. An advisor can also provide guidance on how claiming strategies can affect their retirement income and help them determine the optimal age to claim their benefits. Start planning for a secure retirement by contacting our affiliate, MBE Wealth. Schedule a consultation to discuss the optimal claiming age and strategies that will maximize your benefits.
Early and Proactive Retirement Planning for a Successful Future
Early and proactive retirement planning is essential for a successful future as a May-December couple. By finding a retirement lifestyle that suits both partners and considering each other’s needs and aspirations, you can create a plan that accommodates your unique desires.
Retirement planning is an ongoing process. Continually assess and adjust your plan as your circumstances, goals, and market conditions change. By embracing early planning, effective communication, and professional guidance, you can pave the way for a fulfilling retirement.
Stay connected with MBE CPAs for news and updates on retirement and financial planning. Their resources can provide valuable information to help you make informed decisions. Additionally, consider contacting MBE Wealth for professional guidance and advice on your retirement journey. Take action today and start planning for your future!
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