The following example clearly shows how much of a difference an extra five years of work can make for a couple:
Larry and Sally Griffen are both 60 years old. They each earned an average of $40,000 per year during their working years. Both 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 by that time. When each reaches full retirement age (for their birth year), at age 67, they will be entitled to full Social Security benefits. The Griffens expect to receive $24,137.75 per year in retirement from their account, with a depletion of assets by age 90. If they claim Social Security benefits at 67, Larry and Sally can each expect an annual benefit of approximately $18,850. This would bring their total annual retirement income up to approximately $61,837.75 per year, a roughly 30% drop in income from their $80,000 pre-retirement income. But if Larry were to work for another five years, he could step up his contributions to accumulate another $30,000 in his retirement plan and would draw on it for five fewer years.
If the Griffens are able to postpone any retirement plan distributions until Larry retires at 70 (since he will still be earning a salary), and Sally begins taking Social Security at age 67, they could reasonably expect to have a total of approximately $437,000 in retirement assets. Larry will also get enhanced Social Security benefits of $28,332 per year (instead of $18,850). If their investments continue to grow and they still deplete their assets at age 90, their total annual retirement plan distributions would come to about $83,182, effectively replacing the income from their jobs until age 90.
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, which may be more or less costly than Medicare.
Individuals become eligible for Medicare at age 65.2 If spouses are not the same age, the younger spouse will need to find alternative coverage if they both retire when the older spouse is 65.
Emotional Reasons for Retiring Separately
Retirement can be an emotionally complex transition. Losing one’s sense of identity through work can be a major adjustment for some, while others find it relatively easy. When a working couple retires simultaneously, they suddenly find themselves at home together all the time, without the separation of work that they may have become accustomed to. This sudden shift can disrupt a couple’s 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 who is expected to have more difficulty with the process) some time alone to begin creating a new identity while some elements of their relationship, including separation during the day, remain stable. If both spouses retire at the same time, the emotional impact on each partner and on their relationship as a couple can create friction that might otherwise have been avoided. If both spouses struggle to find new paths for themselves, they may end up taking their frustrations out on each other.
On the other hand, many people look forward to activities like travel during retirement that they won’t be able to do if one spouse is still working. So it may not make sense to delay the second retirement for more than a few years at most. That is one of the issues it makes sense to talk through before and during the process.
The Bottom Line
Retirement is a complex and expensive phase of life. When couples stagger their retirement dates, they can reap financial and emotional rewards that should make this vital transition easier. Life may, of course, shape which partner ends up retiring first and change the plans the couple made when they were younger. One person’s job situation may shift, or health issues or problems with other family members could intervene.
“A staggered retirement date is a great idea for financial and marital health reasons,” says certified financial planner Kristi Sullivan, Sullivan Financial Planning, LLC, Denver, Colo. “Financially, it allows you to more slowly draw down assets in early retirement. If anyone is under the age of 65, the working spouse can hopefully carry medical insurance to bridge the gap until Medicare eligibility. Also, not retiring at the same time can let couples find their groove in retirement without being on top of each other right away.”
Whether you decide to stagger your retirements or stop working simultaneously, thinking about it in advance will make this process easier.