Age Gap Can Create Estate Planning Challenge

Open and honest communication can be the key to a good estate plan.

Most married couples have a small age difference.  However, for those who don’t, it is possible that there can be complications, according to the Reno Gazette Journal in “Retirement planning challenges for age-gap relationships.”

For those couples with a bigger gap—5% of first marriages and 20% of second marriages—there needs to be a special focus on making the two individuals’ needs work. As an aside, the age disparity is higher for LGBTQ couples, according to a Facebook data survey.

Financial matters for large age-gap retirement planning include both retirement funding and health care costs.

Ideally, a mixture of income sources will include Social Security, pensions, 401(k) plans, after-tax investing, inheritance, the sale of a business, etc. Most couples plan for three decades of retirement at age 65, but with a significantly younger spouse, two things typically happen: the level of required assets rises and the withdrawal rate declines. The assets needed to fund a $50,000 withdrawal for 30 years is about $1.1 million (assuming a 5% rate of return and 3% inflation). For 40 years, the wealth required is $1.34 million.

Social Security timing becomes more complex. Generally, one wants to delay taking Social Security benefits as long as possible, to lock in higher rates and survivor benefits.  However, if one of the spouses takes their benefits early, the survivor will collect the deceased benefits at full retirement age or reduced benefits at age 60. The survivor may qualify for benefits on their own earnings history. Remarriage after age 60 may or may not impact survivor benefits. A surviving divorced spouse may be eligible for a benefit, if they are married for ten years or more.

Defined benefit pensions, such as PERS, provide a monthly benefit based on average compensation and length of service. Terms are also very specific about when you may draw these benefits. The survivor benefits for spouses are reduced. They may get half of what you would receive.

The cost of health care is a real concern for people with chronic conditions. The older retiree is probably close to being eligible for Medicare. However, if the younger spouse depends on the older spouse for health care coverage, they will have to purchase their own policy privately, which can be extremely expensive, if it is even available. 

The question of whether the couple’s relationship will continue after one has retired and the other is still working, is a valid one. The bigger the age gap, the less likely their chances for success, say some studies, especially in the case of second or third marriages. 

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and can include dealing with an age gap.

Reference: Reno Gazette Journal (Nov. 28, 2018) “Retirement planning challenges for age-gap relationships”