Retirement Planning for Couples
MoneyBee supports couples, reflects taxes and your partner’s savings, RMD, benefits, timing & life expectancy.
Most of us will have a special someone to share our retirement years with. Factoring your significant other into your retirement planning may complicate the math, but is critically important. Doing so will affect your expenses, benefits and taxes in retirement, as well as the time span for which you need to plan.
Age-Related Expenses
Couples tend to think of most of their expenses as a family, but there are certain age-related expenses that need to be projected separately. Aside from health care and life expectancy, regulatory factors come into play here, too.
For example, your health care costs are likely to change significantly with age, so an accurate projection of these costs must take age into account. Most of us can start receiving Medicare at age 65. If you retire before age 65, buying health insurance on your own can be very expensive and your retirement planning has to reflect that. Since most couples are of different ages, this requires a separate projection for you and your partner.
Taxes
Your marital status affects your tax brackets, deductions, exemptions and deductible limits to Individual Retirement Accounts (IRAs). An unmarried couple filing separately and a married couple filing jointly may pay significantly different taxes on the same household income. For example, as a married couple you can deduct $500,000 of the capital gain from the sale of your primary home, whereas an unmarried homeowner can deduct only $250,000.
When you turn 72, you are required to start withdrawing a certain amount from your tax-deferred retirement accounts. This required minimum distribution needs to be determined separately for you and your partner, based on your respective ages.
Your Life Partner's Benefits
If your significant other is also working and saving towards retirement, you need to include and project their savings in your shared retirement plan as well. The timing of your life partner's retirement should also be factored in. If one of you continues to have some income after the other retires, this may significantly reduce the amount you need to draw from your retirement savings.
If married and your spouse never worked or worked significantly less than you, they may still be eligible for a Social Security benefit, thanks to the spousal benefit on your account. In addition, the surviving spouse will be eligible for survivor benefits from the deceased spouse's account. Under Social Security rules, the survivor will get the greater of the survivor benefit and their own benefit. Under employer pension plans, the surviving spouse will typically also get a survivor benefit.
Life Expectancy
Statistically speaking, there is a high probability that one of you will outlive the other by several years. On average, husbands in the United States are 2.3 years older than their wives. At the same time, women live on average 5 years longer than men. This means that on average, wives survive their husbands by more than 7 years. While these statistics don't apply to all couples, you do want to make sure you will have enough savings to last for the expected lifespan of the last survivor. Not reflecting your respective ages and life expectancies in your retirement plan can cause financial difficulties for the survivor just after losing their life partner. It is worth making sure these aspects are well accounted for.
Conclusion
There is practically no scenario where your life partner can be ignored in your retirement planning without throwing off the entire calculation. This becomes even more important if both of you are working, both have retirement savings or there is a significant age difference between you.