When He's Retiring but She Isn't

A big age difference makes financial planning tougher for couples, especially if they have kids. But a few key adjustments should do the trick

My husband is 53, and I am 10 years younger. During our 20-year marriage, I have been in and out of the workforce raising children and getting my PhD in economics. Now, I plan to return to full-time employment. I am essentially just getting my career under way as my husband approaches the completion of his. None of the retirement seminars address the issue that not all husbands and wives are the same age, nor do they retire at the same time.

--e-mail from Worcester, Mass.

Couples with a wide age gap face a unique set of problems as they plan for retirement. They must often set aside the conventional wisdom about how much insurance they need, what they should invest in, and how to calculate their pension payouts. "Seldom do people have the same needs at the same time, but it's even harder to plan when there is a big age difference," says Deena Katz, a certified financial planner in Coral Gables, Fla.

A husband and wife approaching retirement might normally scale back their life insurance, especially if their kids are college age or older. But if the family will be depending on the income of the younger, still-working spouse, that would be a reason to increase his or her life insurance.

Spouses with big age gaps must also make decisions about how to manage their pension money much earlier than couples who are the same age. With a younger spouse, the couple might have higher costs for a longer period of time, and their investment strategy must reflect that. "Couples must design their portfolio around their anticipated cash-flow needs, and then decide how to fund the expenses," says Stanley Ehrlich, a registered investment adviser in Clinton, N.J.

The husband in the Worcester (Mass.) couple has worked for 27 years as a computer-systems analyst at the same manufacturing company and is looking to retire within the next five years, while the wife is hoping to continue rising through the administrative ranks at the university where she works. They have paid off their mortgage and saved enough money through the husband's 401(k) to pay for college for their kids, ages 13 and 17, or retirement--but not both.

They hope to meet both financial goals by using the wife's salary to cover college costs and the husband's retirement funds to pay for day-to-day expenses. To protect her income, she will need to increase her life and disability insurance at the same time her husband decreases his. Now, she has no disability, and he gets coverage through his job that protects 66% of his salary. They have $220,000 worth of life insurance, divided equally, but they will have to shift the balance in her favor.

Fortunately, health insurance will not be an issue because the wife's policy will cover the husband until he qualifies for Medicare at age 65. They do both need to consider purchasing long-term care insurance, however.

STAY IN STOCKS. As for their investment strategy, "they need to allocate their portfolio for the overall total return," and that means a high proportion of stocks, says Ehrlich. The wife must consider how long she intends to work and contribute the maximum amount to her existing retirement account. She plans to invest more aggressively than her husband--at least 60% in stocks. He has recently switched some money out of equities, and now more than half of his portfolio is in bonds.

When it comes to his pension payout, the husband should keep his 401(k) money in the company plan, even though he could move it to a rollover IRA. Why? Retirees from 55 to 59 1/2 can withdraw from company plans at will and without penalties. With a rollover IRA, a retiree younger than 59 1/2 must adhere to a strict withdrawal plan or get hit with penalties.

With his wife still working, the husband shouldn't have to draw down all his retirement stash. What's left when he's 70 1/2 will be subject to the Internal Revenue Service's new distribution rules that take effect on Jan. 1. These rules will work to the advantage of spouses who are at least 10 years apart, says Sue Stevens, a certified financial planner in Deerfield, Ill. They can choose a payout schedule that allows them to set up a withdrawal plan based on an average of their life expectancies instead of just his, which is now the case. That allows the money to last longer--a comfort for anyone in this situation.

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By Toddi Gutner

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