Financial challenges when one spouse retires first

In an ideal world, couples plan for and start their retirement at the same time, stepping away from a long-tenured career and excitedly starting the next chapter of their life together. Realistically though it might be hard for spouses to “pull the retirement trigger” at the same exact time, and when one spouse retires before another it can create tricky financial and lifestyle challenges.

Whether it’s a difference in age, an unexpected job loss, or outside decision that hastens retirement, there are a number of reasons why couples might not be able to enter their golden years together. For couples to stay on the same page, and on track with finances until the second spouse enters retirement, there are key considerations to talk about with your advisor and with your partner.

Social Security. Know that there could be tax implications if the other spouse continues to work, but you are filing taxes jointly. Determine if it makes sense to delay taking Social Security until later years, or at least understand the financial impact that the tax could have on annual finances.

Budgeting. This is a hugely important element when one spouse retires first, and something that your advisor will sit down and evaluate early on if couples might experience this scenario. Will you try to maintain current lifestyle on one income? Do you intend to begin Social Security or tap into retirement assets (or both)? How will this new lifestyle and newfound hobbies impact your day-to-day financial picture? Have open and frequent conversations with your partner, and advisor, to make sure that any spending is in line with the long-term goal of both spouses.

Drawing down assets. The order in which assets are pulled from is important in this scenario, not only from a tax standpoint, but from the perspective of letting other accounts grow due to the power of compounding (from the spouse still working). Assuming the first-retired spouse needs to draw funds to support cash-flow needs, a traditional non-qualified investment account could be the most desirable to draw from while the other spouse works. Until the working spouse retires, it may be best that their retirement funds are not touched.

Non-financial concerns. The next tip serves more as cautionary advice, but is still something to think about, even though it is a non-financial challenge. When one spouse retires first, there can be the potential for resentment to creep up from the spouse who is still working. Set expectations early on about what you plan to do with free time, hobbies you plan to take up, and how this new lifestyle could affect the overall financial goals of the couple. Have open discussions so both parties can be on the same page and support one another until the second spouse enters their golden years.  

While there may be challenges to navigate, having open dialogue between spouses, working closely with an advisor, and having a strong plan in place before either spouse retires can help to mitigate any financial or non-financial issues that may arise.

Nathan Boxx, Bradley Newman, Jason Seltzer

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