The Retirement Age Gap That Could Cost Couples More Than They Expect
Everyone seems to have their opinions about age-gap relationships. How much of a gap is too much? How “mature for their age” can the younger party really be? Is the older party having a midlife crisis?
Regardless of whether you have negative feelings on large age gaps or you think love is love, one thing remains certain: age gaps can cost married couples money in retirement.
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Reduced Survivor Benefits
When the older spouse eventually passes, the surviving spouse keeps the larger of their 2 Social Security checks — which is helpful if the older, deceased spouse out-earned the younger one during their lifetimes. Particularly since the surviving spouse just went from two incomes down to one. However, if the higher-earning spouse retired early, they capped the benefit amount the younger spouse will live on for the rest of their life.
As podcast host of The Content Creator’s Accountant, Ralph V. Estep Jr. said, spouses typically decide independently when to claim Social Security — but, with an age gap, partners need to coordinate claiming Social Security as a team. Claiming benefits at 62 locks in a permanently reduced retirement benefit; delaying retirement past full retirement age earns 8% more per year up to age 70.
Living Expenses
If both spouses are retired and still living, they receive two Social Security payments. Once the older spouse passes, however, the younger spouse will live on just one payment. Yet, living expenses (i.e. property taxes, utilities, etc.) don’t drop by 50%. This means the younger spouse is now living on less income while paying the same living expenses and, because they are now filing in a “single” tax bracket, paying higher federal taxes.
In order to assist the younger spouse, Ian Massey of Providence Wealth Planning recommends the older spouse establish a term life insurance policy to replace the income that will be lost after they pass.
Medicare Premium Cascade
If the younger spouse has not turned 65 by the time the older spouse retires (and the younger spouse was receiving health insurance through their partner’s work), the couple will be forced to pay out of pocket to cover the younger spouse’s private health insurance.
Unfortunately, couples often drain their IRAs and 401(k)’s to cover these expenses — which spikes their Adjusted Gross Income (AGI). This then triggers Income-Related Monthly Adjustment Amounts (IRMAA) surcharges, which ultimately increases the older spouse’s Medicare Part B and D premiums. The cascade accelerates itself.
To manage healthcare costs, proactively research Affordable Care Act (ACA) plans to utilize market subsidies.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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