Many working couples dream of the day when they can retire and sail off into the sunset together. The investment and insurance industries have done much to convince the public that this ideal is possible only with the help of certain products and services, and the financial media has endorsed that idea. However, working couples should take a moment to consider whether retiring at the same time is a wise course of action. This article will compare the financial ramifications of joint retirement versus one spouse working longer than the other, and why the latter option may be more advantageous in the long run.
Why Shouldn't Couples Retire Together?
There are both financial and emotional reasons why it may be easier for many working couples to stagger their retirement dates. Financially speaking, the advantages are threefold. When one spouse works longer, the amount of Social Security benefits the couple is entitled to will increase. In addition, the continued income from the working spouse gives the couple a few more years to save for retirement. Finally, a spouse who works an extra three to five years will likely have a shorter period over which to draw on his or her retirement assets, allowing for larger withdrawal amounts each year.
The Financial Impact
The following example clearly shows how much of a difference an extra five years of work can make for a couple:
Example - The Benefits of Working Longer
Larry and Sally Griffen are both 60 years old. They each earned an average of $40,000 per year during their working years. Both of them come from families with longevity, and each expects to live to age 90. Larry and Sally both plan to retire at age 65. At their current rate of saving, the couple will have $300,000 of joint retirement assets plus their Social Security benefits at age 65. Assuming that the Griffens' investments earn an average of 6% per year, they can expect to receive approximately $14,750 per year in retirement in addition to their Social Security, assuming depletion of assets by age 90.
The Griffens can realistically expect their joint retirement income to drop by close to 50% of their pre-retirement income, depending on when they decide to start drawing Social Security. The Social Security benefits online calculator reports that Larry and Sally can each expect an annual benefit of approximately $20,000 if Larry retires at age 65. This would bring their total annual retirement income up to approximately $55,000 ($20,000 + $20,000 + $14,750) per year - an almost 30% drop in income, from their $80,000 pre-retirement income. But then Larry starts to contemplate what would happen if he were to work for another five years. If he did, then he could step up his contributions to accumulate another $30,000 in his retirement plan (15% of $40,000 = $6,000 x 5 years, plus investment growth) and would draw on it for five fewer years.
If the Griffens are able to postpone any retirement plan distributions until Larry retires and Sally begins taking Social Security at age 65, they could reasonably expect to have a total of approximately $437,000 in retirement assets, plus Larry's increased Social Security benefits of close to $28,000 per year. If their investments continue to grow at 6% and they deplete their assets at age 90, their total annual retirement plan distributions would come to about $36,000, plus $48,000 of total Social Security benefits. This effectively replaces the income from their jobs until age 90. Of course, the Griffens would be wise to draw on their plan assets a little more slowly, so they have a cushion in case one or both of them should live past their estimated life expectancy.
This example clearly illustrates the financial impact that just a few more years of work can have on a couple's retirement. The triple power of increased Social Security benefits, increased retirement savings and the reduction of time over which to draw on those savings can mean the difference between a financially secure retirement and one that is marked by financial hardship.
Impact on Health Insurance
Another major factor to consider is health insurance. If, in the previous example, Larry continues to work for another five years, he can keep his health coverage provided through his employer. This would save the couple from having to pay for five years of higher health insurance premiums at an individual rate.
Emotional Reasons for Retiring Separately
Retirement in the modern era can be an emotionally complex proposition. Losing one's sense of identity through work can be a major adjustment for some, while others are able to make this transition with relatively little difficulty. When a working couple retires, they suddenly find themselves at home together all the time, without the separation of work that they may have become so used to. This sudden increase in time spent together can often disrupt established relational boundaries. As such, it may be easier for couples if only one spouse goes through this process at a time, especially if either spouse expects to have difficulty adapting to the new lifestyle.
This gives at least one of the spouses (perhaps the one that is expected to have more difficulty with the process) some time alone to begin creating a new identity. If both spouses retire at the same time, the emotional impact on each partner can serve to create friction in the relationship that could otherwise be avoided. If both spouses struggle to find new paths for themselves, they may end up taking their frustrations out on each other.
The Bottom Line
Retirement is a complex and expensive phase of life. When couples stagger their retirement dates, they can reap both financial and emotional rewards that will make this vital transition easier. There are many resources available that couples can turn to for help in the decision-making process. For more information visit www.ssa.gov or consult your financial advisor and retirement counselor.
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