While married couples sometimes try to coordinate when they retire, not all spouses retire at the same time. Age differences, different stages in their careers and even health can play a role in one spouse continuing to work after the other retires.
However, when only one member of a married couple retires, planning and preparation are still necessary. Couples often underestimate the social, psychological and financial impact of having a spouse retire. Patience and communication are often critical to navigate the transition.
Your income might suddenly be cut in half after one spouse retires. “When you have a married couple, and one spouse retires, it takes a period of time, usually a year or two, for them to get used to the lifestyle,” says John Piershale, a wealth advisor at Piershale Financial Group in Crystal Lake, Illinois. “It’s a big deal when they don’t have that paycheck.” Both spouses will need to adjust to the reduced cash flow.
The retired spouse will also have considerably more free time than the working spouse, so the allocation of household chores and leisure pursuits are likely to change. “It’s important that couples discuss their retirement goals and plans ahead of time so they’re both on the same page,” says Christine Russell, senior manager of retirement and annuities at TD Ameritrade. “If they’re going to retire together, great, or if they don’t, that’s great too, but they need to be on the same page.”
Here’s how married couples can prepare for one spouse’s retirement:
Make a new budget. You will need to make a new budget based on your one remaining salary and any income from retirement benefits. “Before they plunge into this very important part of life, my suggestion is that they both sit down and assess what expenses and income are going to be and what this [retiring] person will do,” says Reid Abedeen, managing partner at Safeguard Investment Advisory Group in Corona, California. “They need to sit down and go through these numbers and tweak the budget.”
Your expenses might change depending on what the retired spouse plans to do. “Talk about what you will do with your time. That will help identify what your financial cash flow needs will be,” says Wendy Ann Payne, founding partner at Centurion Wealth Management in McLean, Virginia. “If you need $8,000 a month after taxes to cover living expenses, medical needs, debt service [and] gifting at holidays, will your assets and retirement income cover all those needs?”
Consider the impact on your relationship. Roles and duties could change when one spouse retires. The working spouse may come home after a hard day not expecting to cook and clean, even if that was their role previously. “It can put pressure on the spouse who’s working if the spouse at home is not doing much,” says Jared Snider, a senior wealth advisor at Exencial Wealth Advisors in Oklahoma City, Oklahoma. “This guy is annoying me because he has nothing to do.”
Your personal routines will also need to be adjusted. The retired spouse could become a night owl, staying up late to watch movies, which could disrupt the working spouse, who has to get up early to go to work. An employed spouse might want to relax in the evenings after working all day, while the retired spouse slept in and is eager to go out and socialize. “What happens when you have a spouse chomping at the bit who wants to go running or to a baseball game? That spouse hasn’t seen you all day and could feel rejected,” Payne says. “It’s important to manage expectations, communicate and continue to be a part of a community.”
Have a plan for Social Security. Married couples should coordinate when they sign up for Social Security to maximize their benefit as a couple. “When there are two people, you want to maximize both spouse’s Social Security benefits,” Piershale says. “If you file too early, you get a reduction. If you file late, you get a bigger benefit.”
Benefits payments are reduced if you enroll in Social Security in your early 60s. For those who wait beyond 66 or 67, benefits increase every year until age 70. “If both spouses are in good health, because of longevity today, it’s typically recommended that people wait until their full retirement age, 66 or 67 depending upon the actual year born, to claim Social Security benefits,” Russell says. “With spouses, a lot of these decisions are very interdependent, so a good practice is for couples to create a model of what it would look like to have one spouse claim Social Security versus delay Social Security and vice versa. Remember to model what happens to Social Security when one spouse dies.”
Don’t forget health insurance. Employer health insurance is a major reason to keep working until age 65. When one spouse continues to work, both spouses might be eligible for employer health insurance.
Once you turn 65, take care to sign up for Medicare on time. “If someone retires and doesn’t file for Social Security until they are over 65, they still want to enroll in Part B,” Piershale says. “There is a penalty if you don’t enroll in time. That’s for the rest of your life. For every 12 months you don’t enroll, it’s a 10 percent hike.”
Reduce your portfolio risk. The working spouse might be continuing to save for retirement, but it’s also important to protect the money you have already accumulated.“They need to assess their risk,” Abedeen says. Retirees often shift a portion of their retirement savings to more conservative investments that are less likely to lose money.
Consider a Roth conversion or spousal IRA. If a couple falls into a lower tax bracket because of the loss of one income, it might be worth it to convert some of your traditional 401(k) or IRA savings to a Roth account, Piershale says. The tax on the conversion will be charged at your new lower tax rate, and you won’t have to pay taxes on future growth in the Roth account.
Also, since one spouse is still working, he or she can make an IRA contribution for the nonworking spouse in a spousal IRA. You can defer paying income tax on up to $5,500 in a spousal IRA, or $6,500 for people 50 or older. The rules: The couple must be married, file a joint return and have earned income of at least the amount being contributed.
Be flexible. You may need to make adjustments to your retirement plan over time. “For couples, it is important to have a shared vision of what your retirement is going to be, but to be flexible as well,” Russell says. “You don’t have to have a final, formal plan on day one of your retirement from your job, but definitely have a plan.”