The term “May-December romance” – slang for a couple with a considerable age gap that leaves one person in the “spring” of their life and the other in the “winter” – often evokes images of Michael Douglas and Catherine Zeta-Jones or Donald and Melania Trump. But for financial advisers, it's about a number of challenges that married clients with a significant age gap need to consider as they plan for retirement. Advisers identified six key areas in which planning for May-December couples may require different financial advice than couples who are closer in age.
Estate planning
Scott Ranby, financial adviser at Kuhn Advisors, finds that
estate planning is a vital component of any financial plan. “We want to ensure both spouses have up-to-date wills, powers of attorney and medical directives or living wills,” Mr. Ranby said.
In a May-December situation, Gil Armour of Sage Point Financial recommends a revocable living
trust.
“The surviving spouse inherits everything upon the passing of the first spouse, and then successor beneficiaries are named to inherit the estate upon the passing of the surviving spouse,” he said.
Investments
Inflation is a key consideration for financial planners working with May-December couples.
“Too often, the older spouse fails to consider that their spouse will likely live much longer and must have a portfolio that can outpace inflation,” Mr. Ranby said. “So we will tilt the portfolio more toward stocks to hedge against inflation more than might otherwise be the case.”
Social Security
While a couple may want to begin to collect Social Security as soon as possible, advisers agree that a younger spouse can benefit if the older one delays.
“If planning for a widow's benefit is a priority, then the older spouse may be waiting until age 70 to claim Social Security, but this will mean both spouses are without income for the first years of retirement,” says Kristi Sullivan of Sullivan Financial Planning. “Just like the Medicare situation, this calls for more savings set aside for retirement.”
(Mary Beth Franklin: Complex Social Security rules for divorced spouses)
A spouse also has the option of switching how much Social Security benefits are claimed depending on what age the spouse is at retirement.
“The younger spouse would probably be covered by his or her employer until retirement,” said Mr. Armour. “At that time, the spouse could claim a 50% spousal benefit until they reach full retirement age, and then switch to 100% of their own benefits.”
Retirement accounts
If a younger spouse inherits an individual retirement account, he or she will have the option of putting it in their own name or transferring the money into a new IRA, tax free. Under a traditional IRA, required withdrawals won't begin until the spouse is 70 1/2.
Financial adviser Rose Swanger believes the surviving spouse should assess his or her personal finances to determine whether that money is needed immediately.
“If the surviving spouse has a good work history and does not need the money, he or she should transfer it into their own account, wait later on to withdraw and let it grow tax-deferred,” she said.
Annuity pitfalls
A couple will make the choice between lump sums and other annuity distribution options, which can become complicated if life expectancy is not taken into account.
“If a couple doesn't properly research their options and consider their spouse in the process, it can leave a widow destitute,” Ms. Swanger warned. “A lot of times the older spouse will take whatever the bigger annuity is, often a single-person annuity … but when that older spouse dies, it can leave no money to the widow.”
And if a spouse wants to go back and change their annuity, that option is often off the table once he or she signs the documents.
“Unfortunately when you make that choice [of annuity], that's permanent and you can't go back to change it,” Ms. Swanger said.
Health care
An individual can apply for Medicare when he or she reaches age 65, and add a supplemental policy to cover the gaps in Medicare coverage between the individual and his or her spouse. But if the younger spouse wants to retire at the same time as the older spouse, Ms. Sullivan warns that they both must be conscious of the additional expense of medical insurance before Medicare kicks in at age 65.
“When couples who have a big age difference want to retire at the same time, they need to have enough savings to pay for medical insurance until the youngest turns 65 and becomes Medicare-eligible,” says Ms. Sullivan. “There is no such thing a spousal Medicare benefits.”
