Age-gap couples face 40-year horizon, higher equity allocation

Roughly 8 percent of US married couples have a 10-year age gap, and 1 percent have a 20-year gap, yet most retirement plans assume both partners retire and draw income on the same timeline — a mismatch that can cost hundreds of thousands of dollars in lost Social Security benefits.

"The name of the game is to enlarge benefits over both of your lifetimes," said Christine Benz, director of personal finance and retirement planning at Morningstar and author of "How to Retire: 20 Lessons for a Happy, Successful and Wealthy Retirement."

When the older partner is also the higher earner — a common profile in age-gap couples — delaying Social Security filing to age 70 can be the right call, Benz said. The younger partner inherits the higher benefit over a longer life expectancy. Full retirement age is 67 for most retirees, and benefits grow through delayed retirement credits for each year past that point. Social Security rules are subject to change, so couples should verify current claiming rules against the latest Social Security Administration guidance.

The stakes are substantial. A Northwestern Mutual study found that 39 percent of baby boomers claim Social Security as soon as they are eligible, versus 27 percent of Gen Xers, while 30 percent of Gen Xers plan to delay as long as possible. For a couple with a 10-year age gap, the difference between claiming at 62 and 70 can amount to hundreds of thousands of dollars in cumulative lifetime benefits.

Portfolio strategy shifts with a longer horizon

For a 55-year-old and a 65-year-old retiring together, the planning horizon extends to 40 years, not 30. That argues for a lower withdrawal rate and a higher equity allocation to combat inflation over the longer period, Benz said. The portfolio still needs cash and short- to intermediate-term bond buckets for safety, but growth potential becomes more critical.

The math is straightforward: a 4 percent withdrawal rate that works for a 30-year retirement may not hold for 40 years. The longer the distribution period, the more the portfolio must outpace inflation, which pushes the equity allocation higher even as the couple approaches retirement age.

RMDs, healthcare, and long-term care

If a spouse is the sole beneficiary of an IRA and is more than 10 years younger, the IRS provides a separate table for calculating required minimum distributions. This allows the older spouse to take smaller RMDs because distributions are spread over a longer joint life expectancy — a favorable outcome for couples worried about drawing down tax-deferred accounts too quickly. IRS RMD tables can be updated periodically, so couples should confirm current figures against the latest IRS publication.

Healthcare is another critical consideration. If the younger partner is not yet Medicare-eligible when the older partner retires, the couple must budget for private coverage or consider whether the younger partner should remain in the workforce. Benz said healthcare costs for a non-working, non-Medicare-eligible partner can be a significant budget line item that couples often overlook.

Long-term care planning should prioritize the younger spouse, who statistically will outlive the older partner. "If a couple has a tight budget and is trying to decide who to get insurance for, go for that younger spouse," Benz said. Even a basic level of coverage for the younger partner can prevent a situation where they outlive the older partner with no one to provide care.

The Social Security claiming decision also interacts with these other planning areas. Thomas J. Canale, partner and private wealth advisor at Summit & Sage Wealth Management, said each year of delay past full retirement age produces a guaranteed benefit increase that serves as "one of the most effective ways to hedge against inflation and longevity risk." However, delaying requires having enough bridge assets to cover expenses in the interim.

For couples where the older partner has health concerns or a family history suggesting shorter life expectancy, claiming early can be the right call. Early claiming can also be critical for families caring for a dependent with special needs, who may be eligible to receive up to 50 percent of the parent's benefit.

This content is for informational reference only and does not constitute professional advice.