Ep # 68: Can I Afford To Retire At The Same Time As My Spouse?
- Do most people retire together? - 1:30
- What are the risks to both people retiring at the same time? - 2:28
- How do we define early retirement? - 4:47
- Non-financial reasons why couples want to retire together - 7:32
- One of the biggest hurdles of retiring together is healthcare - 9:51
- Social Security considerations - 11:39
- How do you decide who gets to retire early? - 17:31
- How our retirement planning process helps answer this question - 19:14
Watch the full video on YouTube:
Benjamin Haas 00:02
Hi everyone and welcome to A/B Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple of Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts...now!
Adam Werner 00:28
Hey Ben! Welcome back to A/B Conversations.
Benjamin Haas 00:30
Let's do it!
Adam Werner 00:33
You said the name of the last one. I was like, oh, yeah, that's what this is called.
Benjamin Haas 00:36
Yeah right. CFP your way out of it.
Adam Werner 00:39
Yeah. I'm not a loyal listener unfortunately.
Benjamin Haas 00:43
We don't get like, there's no headphones here where we like get the pump you up music.
Adam Werner 00:49
Benjamin Haas 00:49
Music - we don't hear that. So, yeah.
Adam Werner 00:53
Maybe we should. Do a little dancing.
Benjamin Haas 00:58
There you go.
Adam Werner 00:59
So today's topic is an interesting one and it's one that I don't know that we get too frequently. But it is in line with kind of that retirement decision and the topic specifically for today is can I afford to retire at the same time as my spouse? I guess maybe more specifically, what considerations go into that decision on the timing of retirement? And is that something I should do at the exact same time as my spouse?
Benjamin Haas 01:30
Yeah, I don't have a statistic on this. I think we can only speak for our experience because we work with a lot of retirees and oftentimes, we are put in that position where we are to give the answer to these questions but the reality is most people don't retire together. I know that that may be different circumstances, whether that's age based or it was health based. It's somebody really likes their job and somebody doesn't, so I guess we would probably default in this conversation to talking through either why that's good. Not having too much risk around two people stopping paychecks at the same time or at that point, what are the risks if you do really want to retire together? There are benefits to doing this together. You'd really like to spend time together. You'd keep each other busy. There's that part of it.
Adam Werner 02:27
Benjamin Haas 02:28
I guess let's go through it in the context that you gave. What would be the considerations or in our world, what would be the risks to both retiring at the same time? And I'm not talking like, we're just going to be at each other's throats all day. We're talking financial risks to ripping that band aid and circling one date on the calendar, essentially.
Adam Werner 02:52
Right. So yeah, it was interesting what you said there and I'm glad you shared it because in preparing for this conversation, it was eye opening to me to really think back to the last handful of clients that have retired and none of them retired together. I think people approach retirement when they are further out of like, that is the goal. We're going to retire together. We're going to travel; we're going to spend time together and then when the time actually comes again, this is just our anecdotal evidence here. That has not been very common in our practice.
Benjamin Haas 03:34
Not at all.
Adam Werner 03:34
For a multitude of reasons but it is interesting how this goes back to we've talked about the retirement book or the book that we share with a lot of clients that is, "What will I do all day?" And it really is a transition into retirement for many people and not just that hard deadline, that hard stop. This is the day that we're going to retire together and now we'll figure it out. It really is a process to go through.
Benjamin Haas 04:07
Let me just hammer home that point and then we will get into the financial side that, probably in fairness is the reason why there may be a staggered moves into retirement. We will talk about age. Age is absolutely a factor here because it's going to be no surprise to the listeners. We're going to talk about Social Security. We're going to talk about Medicare, these are age driven things but I think everyone does find themselves kind of like in this mentally, am I emotionally, am I psychologically ready to make that transition? And have two people completely on the same journey to getting to that point, it's just probably not realistic.
Adam Werner 04:47
Right, so I think then hard pivot to those questions. Number one and I said it earlier, it's can we afford to retire at the exact same time and like everything that we're going to talk about, that potentially is age dependent. So, in a scenario where someone wants to retire early with their spouse and by early I'm saying,
Benjamin Haas 05:12
Yeah, define early.
Adam Werner 05:14
Yeah, before age 59 and a half, when you would have access to retirement accounts, before you're eligible for Social Security, clearly before you're eligible for Medicare at age 65. The afford question really to us just comes down to where have you saved? What access to your savings do you have? What are your expenses? What's the income gap? What are your guaranteed income sources. All of those things factor into okay, what do you actually need to pull from your savings in order to quote unquote, afford to retire at any given point in time? And I mean that's financial planning in a nutshell for us. Really trying to answer those questions on what's the gap I need to fill? Can I afford to fill that with my current savings no matter what that age is. I say early because early retirement again, before 59 and a half, when you can access retirement accounts, there is way more variability built into where you can access money without penalty, without taxes, to be able to fill whatever that gap is.
Benjamin Haas 06:16
Yeah, and let's also think about it, the affordability is also trying to look really long term. People are living longer than the generation before them and if you are now trying to replace two paychecks earlier in that process, there is a strong possibility that you're not going to pass certain stress tests. I know we've been in conversations where, God love our clients, we absolutely love that they're very transparent with us where I can remember somebody specifically saying, if he's retired and I'm not, like, I'm going to be angry with him. I'm not going to be okay with that. It does come back to our job is to recreate paychecks and if we're going to stress things out by trying to retire at the same time, then we want to give you that feedback. So yeah, the affordability of retirement is kind of broad and I'm glad you hit on some subcomponents of that. But I do have that in this camp of age and if we don't have access to things or I'm going to force security a little bit earlier to try to make this work, it is to understand those tradeoffs and staggering into retirement so that all those paychecks had to be replaced all at once. It makes it a little easier for us to do our job.
Adam Werner 07:32
Yeah, and not only that but also what you said there too of that specific scenario of a client saying I would be and I'll use the word because it sticks in my head. I would be bitter if he was able to retire and I could not at the same time. So if you're a listener, hi!
Benjamin Haas 07:52
That had everything to do with age. It's not as common for us to see husband/wife - same age. But I'll use the opposite example of that. We've also heard, I do not want to retire at the same time because I can imagine spending all day at home with this other person so if he wants to retire, great. I'm going to continue to work until I am ready to retire and until I have the clear plan on what I want to do. So, I think that can go either direction. The other risk. I know I hinted at this when I was giving my little opening. One of the biggest retirement factors for us is accessibility to health care and I think this may be another reason that people just default to staggering, especially if there's an age discrepancy that how many times do we hear? Well, why are you still working even if you could retire? Well, I'm working for the health care or he's already retired because he's a little bit older but I don't want to have to pay those premiums, so I'll keep working just to keep the coverage for the family.
Adam Werner 09:01
Yeah, and that's where you can start to get into some interesting strategies to try to bridge that healthcare gap. I mean, we know that there is if you're having to go out and get private insurance through an exchange, Pennsylvania has their own health care exchange. There are ways depending on where you've saved, how much you're pulling from investments, how much taxable income you show in any given year. That you could essentially look for in the eyes of the IRS and qualify for the health care tax credits to help make that way more affordable than just having to go out on your own and purchase insurance. So not that that's necessarily something you want to lead with but it can change that decision.
Benjamin Haas 09:51
Right, and I was going to say - I shouldn't have said but yes, there is that side of it though where, if one person is still working, even if it's a part, I want to create the scenario here, you're working part time, right? You're bridging into retirement but you also have to go make healthcare. You have to go get health care depending on where you're pulling from that you may not be earning as much as you were but you're still having to pull from places that are income taxable and it may have been better to just keep working or it may be better to just fully retire. I think some of these things are so circumstantial based on age and where you're pulling money from, but I think we're hitting the key point here, the risk to retiring together, especially before 65 is now you have to go find healthcare.
Adam Werner 10:41
Yeah, and I think that's one of the biggest hurdles that we see for clients looking to retire before age 65 is really just the unknown of what is healthcare going to cost? How big of a change is that from what I'm used to from my existing health coverage or the coverage I had while I was still working. Changes in deductibles, the changes in the coverage, all of just those unknowns from a cost perspective can be not just a financial hurdle but it can be at the mental hurdle as well of, just you know what, it's easier for me just to continue to work. It's the devil I know versus the one that I don't and certainly we've seen that with certain clients that just probably worked longer than they needed to just because it was that additional added peace of mind that if I can get to this age 65 timeline, I know I'm going to be okay.
Benjamin Haas 11:39
Yeah, so I feel like we did a pretty good job hitting the affordability side, we'll call it the psychological, what will I do all day? Am I really ready for it? I don't know if you had more notes on Social Security. I think that often people will lead the retirement, I can afford to retire when I know I'm going to collect Social Security and that's making up for one of those paychecks. But we often get the question around, well, when should I elect it? And to me, some of that comes back to what's the situation here? Do we have one earner and somebody may have been working inside the home where I wasn't out there earning? I'm relying on a spousal benefit. You can quickly get into the depth of those dominoes and social security if we're talking about retiring at the same time.
Adam Werner 12:32
And when it comes to kind of analyzing that Social Security decision, the timing, especially now if you're looking at it over two lives and not just through the lens of one. I'll put my blinders on, if I'm just making a decision on mine, right, it's very easy to run the calculation on if I started collecting it at 62 versus if I started collecting at 67. I can quickly run some math on what that breakeven age is and oftentimes, it's what we see that difference between collecting it early and full retirement age 66-67 now for most people is that late 70’s range, if you live beyond 78-79, then it probably pays to delay your Social Security until later. But that's not always true and I know we've talked about this in other podcasts. If by delaying you would be pulling from your savings, pulling from investments that are within a retirement account, and now you're paying income taxes, well, then that is a potential one to one trade off. Instead, where you can really make the argument that maybe it makes sense to take Social Security earlier, allow your investments to continue to accumulate and grow to be able to sustain you later in life. That's your inflation protection because that's one of the keys to Social Security, even though we had a huge bump for 2022 based off of the CPI numbers, the inflation numbers, there was an increase in Social Security benefit. Over time, usually those benefits do not keep up with the standard inflation and that's just one of those other risks to keep in mind once you elect Social Security, that's pretty much an irrevocable decision. You do have some opportunities to make adjustments but more often than not, that's not something that you would necessarily want to do.
Benjamin Haas 14:22
Yeah, so I'm thinking of the scenario going back to this main question, can we afford to retire together? Thinking of a scenario where the primary earner put in their time, maybe it was one of those stressful jobs and maybe they're compensated more for that so they want to retire a little bit earlier. But the other spouse, maybe it was, if it was kids, again, whatever the scenario was where the earning history isn't as great but now, they are working or maybe a little bit part time, where retiring early primary earner and taking Social Security early is going to hurt the spouse and what they're going to be able to get. Because the spousal benefit is going to be dependent on what the spouse is getting as Social Security so I feel like I need a flowchart here but I think you're getting the gist that this is another consideration to, are we retiring together? Are we staggering? How are we going to elect Social Security? And certainly the risk to taking Social Security too early, it's big.
Adam Werner 15:28
I think people understand that between Social Security and Medicare, getting to that age in life, there are some really confusing government programs. It feels daunting to try to navigate and even now with Social Security, they've closed a lot of the loopholes where you did have flexibility of strategies. Where you could elect for one spouse, delay your own benefit so that grew and then you can switch that later. Most of those have essentially been closed off. The IRS got wise and decided they want to address those, for better or for worse. But there are still options, so in your scenario where you do have, again, potentially the spouse that was at home with the kids for the majority of the time, maybe doesn't have their own earnings history or at least it's not a substantial earnings history that builds their own benefit. Getting that timing correct to maximize the spousal benefit and then also maximize the primary earners, Social Security benefit does matter because statistically if the male was the main earner and has a higher social security benefit, it may behoove that couple to try to delay that benefit as long as possible. Because the higher his benefit, if, again, using this example, try not to be sexist. But in this example, where the male was the main earner, statistically males die a few years sooner than females do so to have that benefit be as high as possible before you start Social Security, it also means the survivor benefit is going to be a little bit higher, too. It's hard to try to want to make those feel like very irrevocable permanent long-range decisions when you're in your mid 60’s but there are many details that we at least want to be thoughtful about before you make that big decision.
Benjamin Haas 17:31
So if we're kind of listing these risks, as things people should consider before retiring together, then kind of the moral of the story is one person retiring first to even the risks out a little bit. How do you decide who retires first time? Is this a thumb ware? Are we arm wrestling? Flip a coin? Are there considerations there? I guess on the financial side, is there something that's going to lead us to driving that conversation?
Adam Werner 18:07
I don't know. Is there?
Benjamin Haas 18:11
I don't know. That's why I asked you. I guess maybe it does come back to people are going to default to age.
Adam Werner 18:21
Benjamin Haas 18:24
Retirement readiness? I don't know? I wanted to throw out there as a reasonable question.
Adam Werner 18:29
So yeah, what popped into my head is more so a recent example that I'm thinking of. The goal when they came in was to make sure that the spouse could retire. That the wife could retire like yesterday, if possible. The husband still likes what he does, plans on continuing working. Maybe not as grueling of a schedule, right. Being able to have some flexibility and freedom of time was important but I think that is an interesting question on just, it feels like such a personal decision and based on the situation, just the feelings on retirement. I just, I'm not sure.
Benjamin Haas 19:14
You know what? It has to be good enough to say that's one of the situations where it really does depend.
Adam Werner 19:21
Benjamin Haas 19:24
So moral of the story. Most people choose not to retire together, at least in our experience. But if they're looking to retire together, we'd want to go through those lists of questions. I think, correct me if I'm wrong. Affordability was number one. Certainly, we want to make sure that people are thoughtful about the emotional and psychological factors to retirement. That you don't find yourself in a spot where you've retired, you don't have the consistency of income, but then you're also not feeling rewarding lifestyle, healthcare, Social Security, and trying to avoid big withdrawals early in retirement.
Adam Werner 20:09
Yes. So that's not one that we necessarily hit on specifically but that is the key right. In a lot of the planning that we do, trying to thread that needle between having enough money that we feel like confidently it's going to last my lifetime but not having too much leftover. Like I left something on the table. There's a fine line to walk there but what we see the biggest risk to that longevity in retirement, is those withdrawals early on and then God forbid, you compound that with a potentially volatile market, where then it really does feel like well, crap. Maybe I shouldn't have retired just yet.
Benjamin Haas 20:57
Yeah, if you are planning to retire together, our margin of error on assumptions leading up to retirement is way smaller. We want to build in a buffer of potential expenses that you haven't thought about but hopefully, it makes a lot of sense that if now it's no consistency of income coming in. That first year or two we might have been off the mark a little bit on what we want or what we needed there's no backstop by one person's income in that situation.
Adam Werner 21:29
So what it just brings up the three-bucket theory, making sure if there is that much thinner margin of error over time. If you retire together now, you're replacing two paychecks, not just one. To make sure that you do have a cash reserve that can withstand some market volatility to allow you to stay invested and to have it rebound, and make sure that you can reliably fill that income gap without having to sell into what could be an inopportune market.
Benjamin Haas 22:01
You got it. All right. Hopefully this is helpful. I know sometimes, like you get into the weeds on certain specific situations or all the dominoes. I know we say it a lot. The answers to these questions sometimes is, it really just depends. I think it's what makes our job fun, that no two situations are the same and here we are trying to lump things together. But it's a good question, it's a common question. It's something we deal with on a regular basis and hopefully, those are some thinking points for people that are getting close.
Adam Werner 22:33
If you have those questions and you want our perspective, you want us to play mediator. We'll gladly do it.
Benjamin Haas 22:42
Yeah, it doesn't have to be an arm wrestle. Alright, Adam, as always.
Adam Werner 22:48
Very good. Thank you.
Benjamin Haas 22:50
Thank you for being the A in the conversation today.
Adam Werner 22:53
I appreciate it.
Benjamin Haas 23:16
Hey everyone, Adam, and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you. Consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening! Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor.
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