Think of the many ways to say, “I love you” around Valentine’s Day.
There’s candy, roses and, for the person you plan to spend the rest of your life with, a lifetime of income.
Even I might have questioned the romance of this idea but I recently spoke with a client whose interest in deferred income annuities, specifically a QLAC, stems from his deep love and concern for his wife, who happens to be much younger than he is.
He is 73 and retired. She is 60 and beginning to put in place the process for her own retirement at 65. Both have a life expectancy between 85 and 90. But because he’s much closer to that age, the actuarial tables have her living about 10 more years after he passes away, and of course she could live much longer, too.
So his thinking was that when she reaches 85, he’d likely have passed away and he wanted income from a QLAC to start at that age.
A couple’s age gap can complicate retirement planning
It’s easier to plan for retirement when you are both close to the same age: One savings goal and set of investment decisions will serve both of you. As I have written, it is also helpful to think about retirement in stages, and the different needs you will have in each stage. When one member of the couple is in an early stage, and the other is in a later stage, you need to take those differences into consideration.
At 60, you are making sure you have saved enough during your working years. A 70-year-old is deciding when to activate the products already put in place. At 80, you are analyzing your program for tweaks to ensure the income stream continues.
A couple with a large age gap should calculate how much income each individual will need for retirement and how to prepare for that.
There are several ways to approach this dilemma.
- Income annuity that pays over both lives
- A deferred income annuity or QLAC that covers the younger spouse
- Life insurance on the older spouse whose proceeds can provide an income to the younger spouse
The use of insurance or income annuities is the most direct way of reflecting actuarial differences. As you know, stocks or bonds don’t care what age or gender you are, or whether you’re single or married. They may not provide the income you need at the right time, either.
Marrying a Younger Spouse
One of my acquaintances, a recently divorced man, was well on his way to accomplishing his retirement goals when he met his future wife. She was just getting started in her savings, relatively speaking, and was eight years younger than his previous wife. So, he asked himself, how much more will he have to save to provide him and his new wife a secure retirement?
While retirement planning is more challenging when there’s a significant gap in a couple’s ages, you can size the problem, if you use an income annuity as a measuring stick.
Take a couple aged 60 (male) and 58 (female) and with no dependents, with $500,000 in savings and looking to retire when he reaches 70. If they spend that money on an annuity, their guaranteed retirement income is: $3,646.
Take that couple and reduce her age to 50. Their guaranteed income is then $3,288.
An 8% reduction – but not an issue that can’t be handled.
You can go to my website, Go2Income, to research how much income any couple, whatever their age gap, can be guaranteed.
And if you really want to impress, you can always throw in a dozen roses.