From Humphrey Bogart and Lauren Bacall to Michael Douglas and Catherine Zeta-Jones, marriages with age gaps have transcended generations.
In many marriages, spouses are aged one year apart or less. According to the 2013 U.S. Current Population Survey, this is true for roughly one-third of marriages. In around 10 percent of marriages, however, one spouse is 10 or more years older than the other. That may not seem significant, but some sources say the number of May-September romances is increasing, and with this increase comes the need for better financial planning.
When spouses have significant age differences, the question of when to retire becomes more important. Will the couple retire at the same time, or will the younger spouse continue to work while the older spouse retires?
This can affect the psychological dynamics of the relationship as well as the couple’s finances. Couples with an age gap, for example, may have different income levels and investment needs (with one spouse working and one spouse retired). How should assets be allocated to protect the spouse who needs a growing nest egg as well as the spouse who is worried about market volatility? A balance must be found to keep the older spouse’s current needs with the younger spouse’s extended time horizon.
Additionally, these couples must understand the rules for withdrawing assets. For example, required minimum distributions (RMDs) from retirement accounts are typically calculated based on the Uniform Lifetime Table. But if your spouse is 10 or more years younger, instead you must use the Joint Life and Last Survivor Expectancy table, which will result in smaller RMDs (and lower your taxable income).
There is also end-of-life planning to consider. If the older spouse has children from a prior relationship, it is important to have a strong estate plan that balances the younger spouse’s financial needs with the desire to leave children an inheritance.
To strike a balance among all of these needs, consult with your financial professional to develop a personalized retirement plan.