Four Financial Reasons You and Your Spouse Shouldn’t Retire At The Same Time

For many years Americans have held this notion of the idyllic retirement in which husband and wife stop working and spend the rest of their days traveling to white, sandy beaches, and dining by candlelight at some trendy, new eatery. However, since the real estate market took a tumble, bringing every other sector of the economy along with it, the only people left in American dreaming about this kind of retirement are the Madison Avenue types who get paid to promote the destinations with the white, sandy beaches, or the exclusive restaurants.

The fluctuations on Wall Street have hit Americans in the face with a bucket of cold reality, causing them to realize that you need to make some practical decisions before you retire, because you may not have as much of a nest egg as you originally planned. One of those decisions is whether or not it makes financial sense for you and your spouse to retire at the same time, or should you stagger your retirements?

In some cases, staggered retirements occur naturally. Spouses who differ in ages, or who have entered the workforce at different times, typically stop work at different times. However, in situations in which both of you reach retirement age around the same time, it may be prudent to consider separate retirement dates to get some significant financial benefits. Here are some factors to consider when making your decision:

• Delaying drawing down your IRA — If you still have one paycheck to help with living expenses, it may be possible for you to delay making withdrawals from your IRA, or lessen the amount you do withdraw. Another benefit of your spouse continuing to work is that they can also continue contributing to an IRA. The maximum amount for 2008 is $5,000, with an additional $1,000 catch-up contributions allowed for workers 50 and over.
• Delaying taking Social Security benefits until you are older — For every year past your full retirement age (which is determined by a Social Security formula involving your birth year) you wait to take Social Security benefits, your monthly check goes up 8 percent until you reach age 70. A working spouse may allow you to leave your Social Security benefits more time to accrue. On the other hand, if you took early retirement at age 62 because of a chronic health condition, having a working spouse is also an important asset. That’s because taking early retirement results in permanently forfeiting 25 percent of your benefits, if you were born between 1943 and 1954. If you were born after 1959, you will forfeit 30 percent.
• Getting the most out of your pensions — If both of you have defined benefit pension plans, meaning traditional pensions paid for by an employer, and your spouse plans to continue working, it may be a good idea to opt out of the joint-and-survivor benefit that continues providing checks to a spouse after the pension-holder dies. This will increase your benefit by approximately 10 percent. Another reason a spouse who has a defined benefit pension plan may want to continue to work is because they will continue to accrue benefits while you are receiving yours.
• Continuing to have employer-provided health care coverage — With the rising costs of health care, and the fact that Medicare doesn’t always cover enough medical expenses, your spouse may decide to continue working to maintain health care coverage for both of you under their employer’s health plan. This is especially important if your former employer doesn’t provide retiree health care coverage.

As the face of retirement continues to change in this country, and emphasis is taken away from defined benefit plans and shifted to defined contribution plans which put you in control of how much you have for retirement, individuals are going to have to make far tougher choices about how and when to retire than their predecessors did. Failing to make these choices could cause you to outlive your assets.