Life under the Two-Person Rule persists in the Retired Years

Planning for Retirement: A Couple's Guide

Retirement planning for couples is a complex yet essential task. With the average lifespan of Americans on the rise, it's crucial to consider the long-term implications of financial decisions. Here are some key points to keep in mind.

Pension and Annuity Options

When it comes to pensions and annuities, couples have two main options: a single-life annuity and a joint-and-survivor annuity. The latter provides a reduced benefit that continues for the life of the surviving spouse. It's important to note that after one spouse dies, the survivor keeps the larger of the two benefits (Huey).

Social Security Benefits

Strategies for maximising Social Security benefits can significantly impact a couple's retirement security. Delaying the higher earner's Social Security benefit as long as possible can provide the greatest long-term security (Panambur).

The 'Rule of Two Lives in Retirement'

The 'rule of two lives in retirement' emphasises the importance of accounting for the partner at every decision point. This includes pension benefits, Social Security, withdrawal strategies, and emotional well-being.

The Widow's Penalty

Unfortunately, the change in status from "married filing jointly" to "single" can push the survivor into a higher tax bracket, a phenomenon known as the "widow's penalty" (Deva Panambur).

Survivor Benefits

If one spouse passes away, the surviving spouse can typically switch to a survivor benefit based on the deceased spouse's earnings record, if it's higher than their own (Panambur). Strategies that offer more flexibility and greater long-term value may be available for survivor benefits.

Age Differences and Gaps

Age gaps, health disparities, and differences in risk tolerance between spouses can have real consequences for drawdown strategies, asset allocation, and insurance planning. On average, men retire at age 64 and women at 62 (Center for Retirement Research at Boston College).

Planning for the Longest Lifespan

Given the increasing lifespans, it's essential to plan for the longest likely lifespan, not just the average. Rising lifespans and medical advances are expected to increase the global centenarian population to 3.7 million by 2050.

Financial Consequences of Losing a Spouse

The financial consequences of losing a spouse can lead to a persistent decline of about 11% in a surviving individual's annual income (Chicago Federal Reserve study). This underscores the importance of careful planning.

Roth Conversions and Strategic Asset Location

Roth conversions can help reduce future required distributions (Deva Panambur). Strategic asset location can also be beneficial, such as placing unrealized losses in the account of the longer-living spouse, and unrealized gains in the account of the spouse with shorter life expectancy.

Emotional Support

Lastly, it's important to remember that retirement is not just about numbers. Grieving spouses should seek out emotional support, stay active in things they enjoy, and care for their health (National Institute on Aging).

In retirement, financial decisions affect both partners. By considering these factors, couples can create a secure and comfortable retirement plan that lasts as long as either spouse does.