Retirement involves financial, emotional and social changes. Does it make financial sense to go through this life change at the same time as your spouse does?
Joint retirement impacts the following:
- Social security income. Unless both of you are the same age, the older spouse will be eligible to begin social security distributions first. While the monthly checks will help compensate for the loss of his income, there will be a gap to offset the loss of your income until you are old enough to begin getting your entitlement checks. Even more, stopping work before your full retirement age will limit the amount of money you will receive for the rest of your life from social security. If you want to retire at the same time as your spouse, be sure to consider this negative consequence first.
- Investment opportunities. Another potential pitfall of retiring earlier relates to your nest egg. Again, unless you and your partner are the same age, the younger one will lose the opportunity to continue building his retirement portfolio if he stops working early. Not only will he save less, he will also be starting to draw on his nest egg earlier than if he had not retired at the same time as you. Add in the loss of unrealized potential in growth of retirement investment funds and suddenly retiring jointly may not be so wise. Conversely, if the younger partner works for three to five more years, she will be able to withdraw larger amounts during retirement. That means more financial stability for both of you as you age and undoubtedly begin to incur extra healthcare and senior support expenses.
- Health insurance. Medicare eligibility is based on age. Once again, unless you are both the same age, one of you will not qualify for Medicare coverage right away. You will likely no longer have it through your employer either. Further, individual health insurance premiums tend to be higher than employer-based group rates. Dipping into your retirement savings to afford the cost of expensive health coverage for your younger partner impacts your overall retirement savings. The financial hit of having to obtain your own health insurance plan until you are old enough to qualify for Medicare may not make joint retirement financially smart.
- There is another positive benefit to staggering your retirement with your spouse. If you are the working spouse, you can glean vital lessons from your partner about the experience. Shifting from a worker mentality to a retiree mentality takes time. Learning from your loved one can help smooth your own transition. Retiring gradually rather than simultaneously also enables you and your spouse to adjust your budget gradually. Rather than guessing how much your expenses and savings will be during retirement, you will be able to evaluate them more accurately based on one spouse’s specific experiences. And then you can know better how much longer you should continue working before retiring yourself.
As welcome as the transition is for many, retirement signifies an important life change. Social and emotional changes occur as couples adjust to a less demanding schedule. Some couples adapt to their new lifestyles together easily. But many others need time alone to acclimate to an abundance of free time. Planning ahead and discussing early on how you each envision your golden years can ease the transition into retirement, whether you do it simultaneously or years apart.
At Silverman Financial, we strive to help couples make retirement decisions that make financial sense. We evaluate options and help couples determine the most optimal time to retire while securing stable and rewarding futures.