Dual-income households have been on the rise over the past generation. A common assumption for couples approaching retirement and financial planners alike is to plan for a synchronized retirement date. But should couples plan to retire at the same time?
“In the past, most couples took it for granted that when one of them retired, the other would, too — and they usually faced only the husband’s retirement,” according to sociologist Phyllis Moen. “Two-career boomers are the first generation that has had to deal with his-and-her retirements.”
Statistics Canada reports that about one third of couples retire together — that is, within one year of each other. In the U.S., AARP recently found that retirement synchronicity is only about one fifth for Americans. The reality is that most partners do not retire at the same time.
While working, many couples spend more time apart than they do together. Retirement presents a unique challenge to not only determine how to spend an extra 40 hours each week, but also how to spend much of that free time with a spouse. And then there is the matter of paying for it all.
From an economic perspective, an early retirement means more years in retirement, and that has obvious financial risks. Less years of work results in a workplace defined benefit pension plan that is less lucrative, but even retirees without employer DB pensions may receive a lower government DB pension from the Canada Pension Plan. CPP generally requires 39 years of maximum contributions to qualify for the maximum retirement pension.
Early retirement means less retirement savings and more years of volatility for an investment portfolio that is being drawn down. It also results in more years of living expenses being funded with accumulated retirement income sources, requiring a bigger nest egg at the outset of retirement.
Money aside, if, and more likely when one spouse retires before the other, there is always the risk that the working spouse is envious of the retiree spouse’s newfound freedom. On the other hand, a retired spouse could feel tied down by the commitments of the working spouse. There is a risk of resentment from either the retired or the working spouse that needs to be considered.
One cannot help but wonder if there is a correlation with the increase in grey divorce. Statistics Canada noted that in 2011, nearly three times as many 55 to 59-year-old women were divorced or separated than 30 years earlier. 55 to 59-year old men had a nearly five-fold increase over the same period.
In previous generations, there were more single-income households and therefore only one retirement to which many couples needed to adapt. Now, couples planning for retirement must be mindful of the implications of different retirement dates.
According to the 2018 Fidelity Investments Couples & Money Study, 43 per cent of couples disagree about what age they plan to retire. Millennials, Gen X and Baby Boomers were all polled in the study. Surprisingly, even 33 per cent of Baby Boomer couples disagreed on retirement age, despite being close to retirement.
For perspective though, 1 in 5 couples surveyed could not agree on how long they had been together.
Despite a couple’s best intentions to plan for retirement, there can be situations that derail those plans. CIRANO’s research into trends in Canadian retirement found that health was the main reason for retirement for both women and men in multiple surveys over the past 20 years. This is an important contingency to consider.
Spouses should talk about retirement planning, both in terms of retirement age and standard of living. As retirement approaches, it is important to think about what it will entail on a day-to-day basis. For some, the answer is simple. For others, it can take a bit of work trying to figure out how to replace their workday in retirement.
Couples and their advisors should force discussion about different retirement goals. If nothing else, it may encourage them to determine a happy medium and avoid one spouse’s bitterness putting at risk their retirements.
Perhaps most importantly, given how often health issues trigger retirement, it is crucial to consider this risk. Disability and critical illness insurance get less attention than life insurance and can be expensive, but perhaps less costly than the alternatives.
An early unplanned retirement may mean a lower future standard of living or that a healthy spouse needs to work longer and harder than they may otherwise want. This could put a happy retirement at risk on many levels.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.