Retirement planning is daunting at any time. Knowing how much will be enough for your future hypothetical situation and ensuring that the appropriate financial strategies are in place for any unforeseen happenings is a formidable task.
Dual income couples with an age gap face even greater challenges. This is according to Lisa Griffiths, a wealth adviser at BDO Cape Town, who cautions that couples with an age gap have special needs to consider when planning for their retirement.
“Many couples face the special task of planning for two retirement dates that may be many years apart. Rather than planning for 25 or 30 years in retirement, couples with age gaps should be planning for 40 or more years.”
“Though couples may only be three years apart in age, when the older spouse retires, they have to think about how to replace lost income (generally the household income decreases after the retirement of an income earner). If the gap is as much as 10 years or more, those challenges can have a significant impact on their income and spending in retirement, especially for the younger spouse,” says Griffiths. “Not only because the time between their retirement dates is lengthier, but because they must base much of their planning on the life expectancy of the younger spouse.”
It can be intimidating, but planning in advance can help these couples stretch their retirement income to accommodate those extra years. “The concerns are no surprise; they should be considered from early in the marriage, and a comprehensive plan to ultimately manage these issues down the road, must be discussed and agreed to between both parties.”
Griffiths provides the following retirement planning advice to couples with a large age gap:
Choose your retirement ages
“Couples must carefully consider if they should retire together or rather stagger their retirements. Retiring together allows more time together, and can avoid ill feelings and jealousies, but by retiring early, the younger spouse will miss out on future earnings.”
Maximize retirement income
“Couples with a large age gap may need to consider working for more years so that they aren’t dipping into retirement savings too early. If the younger spouse is working, she (or he) may need to stay employed in the first few years of their spouse’s retirement – particularly if that spouses company provides medical aid benefits. The cost of self-funded health insurance in retirement years is an important factor to consider when planning.”
Consider your retirement investments
“Couples should also consider how their retirement savings are invested,” advises Griffiths. “Prior to the persistently low interest rates of the last 10 years, the general consensus was to reallocate your retirement funds to a lower-volatility portfolio (comprising a greater percentage of bonds) as you get older. Now, those in their 50s and 60s frequently have to stay invested in a greater proportion of equities to attain higher returns. Couples with a greater age gap are compelled to take on more risk in their portfolio, for a longer period of time, to allow for enough growth to cover the extended income needs of the younger spouse.”
Ensure adequate health care coverage
According to Griffiths, post-retirement medical costs are a huge factor when planning for ones retirement years. Ensure that you have made provision for this if you will no longer be covered by a company medical scheme. “You will have to start paying your medical premiums from your retirement savings.”
An up to date Will and life insurance
“All couples need to ensure they have an estate plan that includes an up to date Will. Where this is a second marriage, make sure your current spouse is included in your estate planning documents and that you have made provision for any commitments in terms of a divorce order. This scenario is often where there is a real need for life insurance, so that the (younger) spouse left behind is suitably provided for in their advancing years,” says Griffiths.
Start planning sooner rather than later
The further away you are from retirement, the better you’ll be able to prepare for what’s ahead.
“Whether you’re a couple with a large age gap or within a few years of each other, the only way for anyone to know how much money they will need in retirement is to prepare an analysis that factors in how much you have saved, your spending rate, life expectancy and potential investment returns. Other factors may also influence, such as whether you or your spouse will require living assistance or become incapacitated as you grow older.”
Consider your retirement purpose
Over my years of retirement planning, I have found that many people struggle with the transition to retirement, Griffiths cautions. Couples with a large age gap face more challenges than most.
“It is essential that spouses have this important conversation. How they envisage their retirement, how it will be funded and the impact on each other. Not addressing these issues before retirement can be calamitous to the relationship and marriage.”
Griffiths strongly advises that couples sit down with a professional financial adviser to evaluate the quantum of their savings, projected retirement income and spending needs and other goals for their future. “If you want to retire together, despite your age difference, make sure your planning provides sufficient income to support what may be a considerably longer retirement for the younger spouse.”
Read more BDO Insights