You may have retired but your spouse has not. The Center for Retirement Research indicates only 20% of couples retire in the same year and that 50% still have one spouse working two years after the other spouse has retired. You or your spouse may have retired before the other due to health problems or a layoff and not necessarily because you chose to retire early. No matter what the reason, keep these points in mind if you are in that situation:
• Try to minimize withdrawals from retirement accounts. Although you will only have one salary instead of two, it’s best to minimize withdrawals while one spouse is working. It’s a good opportunity to test your retirement budget and try to reduce your expenses.
• Utilize all available benefits from the working spouse’s employer. One of the most significant retirement expenses, especially if you don’t qualify for Medicare, is health insurance. So before one spouse retires, find out if that spouse is eligible for health insurance benefits through the working spouse’s employer. If that spouse is not currently on that plan, find out how you can enroll. Do you have to wait for the annual open enrollment period or will retiring qualify you for coverage immediately?
• Delay Social Security benefits. Especially if you are retiring before full retirement age, it typically makes financial sense to delay Social Security benefits. For a significant number of married couples, the husband is older, has higher earnings, and will not live as long as the wife. Because the surviving spouse can elect to receive 100% of the other spouse’s benefits, it can make sense for the husband to wait until age 70 to claim Social Security benefits, to provide the wife with the highest possible benefits after his death. On the other hand, there is usually no reason for the wife to wait beyond ages 62 to 66 to start Social Security benefits, provided she can claim benefits on her own earnings record. While the wife’s benefits may be lower when the husband is alive, she will receive his higher benefits after his death. Run the numbers and look at life expectancies. What would be higher lifetime benefits for you and your spouse?
• Consider all defined-benefit-plan payment options. If you are lucky enough to be covered by a traditional pension plan at work, make sure to consider all the payment options carefully before selecting one. You will usually have numerous options, but the two most common options are: 1) a monthly benefit for your lifetime; and 2) a monthly joint and survivor benefit for the lifetimes of both you and your spouse. The monthly amount of a single lifetime benefit is usually higher than the monthly amount of a joint and survivor benefit because the joint and survivor benefit has to be stretched over two lifetimes.
The monthly benefit for your lifetime is the typical choice for the wife retiree, since she is more likely to be younger and outlive her husband resulting in higher lifetime benefits for her. The monthly joint and survivor benefit is often chosen by the husband retiree since the wife will most likely outlive him and she would want the benefit to continue for her lifetime. Review your choices carefully because once you elect a retirement benefit option, that election is generally irrevocable.
By doing a little bit of homework, you can maximize your retirement income while minimizing your retirement expenses which will make retirement a little easier for both you and your spouse.
By: Matthew M. Wallace, CPA JD
Published edited August 2, 2009 in The Times Herald newspaper, Port Huron, Michigan as: Get the most from retiring