Date: April 19, 2021

Retirement Planning Connecticut: Staggering Benefits and Retirement with Your Spouse

Some say that a part of the American dream is for a couple to retire at the same time and enjoy their Golden Years doing everything together. The American reality may be something different.

How to arrange your finances so that you, as a couple, don’t outlive your money and still have an enjoyable retirement lifestyle can be a complicated process. You cannot ignore the psychological effects that can accompany retirement, effects that can multiply if you both retire at the same time.


Why is Staggering Retirements Wise?

There are several reasons why a couple would want to stagger their retirements:

  • The working spouse continues to earn money, which may allow for the postponement of their Social Security benefits. This has the effect of creating a larger benefit cashflow when the working spouse finally retires, as Social Security benefits increase each year you postpone your claim, up to the age of 70. (For more on how your Social Security benefits work, check out our new guide: Understanding Social Security.)
  • The working spouse can continue to add to his or her retirement accounts (IRA, 401(k), etc.), thereby creating a larger nest egg for later years if invested properly. It can also mean you can postpone taking money out of your retirement accounts until the working spouse retires (or you are compelled to do so under Required Minimum Distribution (RMD) rules. For more on age-based retirement decisions, read our recent blog post: Important Retirement Ages.)
  • Your health insurance may play a part, especially if one or both spouses are under age 65, when Medicare kicks in. If you and your spouse both retire before age 65, you may have to go out into the marketplace to replace employer-based health insurance, an expense that can take a big bite out of your monthly budget. Also, many high-paid professionals may have gold-plated employee health insurance that they don’t want to give up, even if they are eligible for Medicare. (For other retirement concerns directly related to high net worth individuals, check out our new guide: Personal Finance for High Net Worth Individuals.)
  • By staggering your retirements, you may help preserve your emotional health as a couple and your relationship overall. One should not underestimate the impact of no longer identifying with a job. By retiring at different times, you give each spouse the opportunity to work out the changes without simultaneously handling your spouse’s loss of identity as well. (For more on this, read our recent blog post: How to Test Drive Your Retirement: Addressing Retirees’ 3 Biggest Fears.)


What does your retirement plan look like? Contact Heritage Capital to see if you’re on the right track.


What Could Happen If You Retire at the Same Time?

When deciding the best time (and way) to retire, a lot depends on factors like the age and health of both spouses, as well as your joint accumulated wealth. Simultaneous retirement means a cut-off from any further contributions to retirement accounts, leading to a slowdown and reversal of account balance growth as well as the loss of the tax benefits of contributions.

When this happens, two people may be depending at least partially on distributions from retirement accounts, which initiates the depletion process sooner than would be the case if one spouse continued to work.

Depending on each spouse’s age, retiring at the same time can put a permanent dent in your Social Security benefits, assuming that you begin to take them right away. If either or both are under age 70, you forfeit receiving the maximum benefit available under law, meaning you will have to live out your later years on smaller Social Security benefits than had you waited.

On the emotional front, you will now have two people who will no longer spend time at their jobs. For some couples, this is a blessing, but it can be a difficult adjustment for others. It’s important to discuss your plans, your goals in retirement and your new roles when you’re both at home.

Consider also the impact that simultaneous retirement might have on big decisions. For example, if both a husband and wife stop working at the same time, the prospect for relocation becomes a lot easier than had one person continue on the job. (Remember, retirement planning in Connecticut is different than if you plan to retire in another area.) Big decisions like this are not necessarily good or bad, but if one spouse continues to work, you as a couple may have more time to consider those decisions. You may also have more money and therefore more options when those decisions come due.


What a Spouse Should Consider If Retiring First

The relative income of each spouse has an impact upon the considerations for a staggered retirement. Naturally, if the lower-income spouse retires first, the economic impact will be less than had the higher-wage earner gone first. There will be ramifications as already described dealing with Social Security, healthcare and retirement accounts.

On the emotional side, you might ask which spouse (if either) would have the harder time with some possible psychological fallout of retiring first. Is one spouse more likely to suffer from boredom, loneliness or other negative emotions? It might be that one spouse is more ready emotionally for retirement and should therefore go first, leaving the other spouse to continue working while grappling with the eventual lifestyle changes.


How to Decide Who Should Retire First?

Assuming you decide to stagger your retirements, the decision then becomes who should go first.

Here are some factors that might shape your decision:

  • Age: If there is an age disparity, it might be that the older person is more likely to be burned out or limited health-wise, whereas the younger person may continue to do well on the job.
  • Happiness in the job: Regardless of age, a marked difference in job satisfaction can have a decisive impact on who retires first. It seems sensible that a spouse who hates their job should retire first while the other one (who presumably is happy in their position) continues to work.
  • Benefits: It can be helpful for the spouse who enjoys greater job benefits to continue to work. In terms of Social Security benefits, remember that you don’t necessarily have to claim as soon as (or even before) you retire. At Heritage Capital, we can evaluate the different options you have and what each actually looks like based on your specific situation.
  • Health insurance: Take into account Medicare eligibility and whether either spouse has a superior employer-based health insurance policy.
  • Retirement plans: Consider if one spouse has the primary retirement plan and the income to continue contributions if the other spouse retires. The age you’re required to start taking RMDs is 72. Do your plans address this?
  • Health: Is one spouse health-challenged?
  • Your plans: Do you plan to relocate in retirement? Again, retirement planning in Connecticut is different than it is if you plan to retire somewhere else, where cost of living may be different and overall costs my be higher or lower. If you and your spouse retire at different times, how does this effect your plans?

Retirement planning in all its facets is a crucially important activity that each person and couple should examine carefully. If you’re not currently working with a financial advisor, there’s no better time than now to start. Staggering retirements between spouses can be a financially beneficial yet emotionally difficult decision to make. At Heritage Capital, we can help you navigate this situation together and work out your different options in order to give you the best chances for a comfortable retirement.

Schedule a no-obligation conversation with our team today.

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Paul Schatz, President, Heritage Capital