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Retirement planning? Mind the age gap

An age difference in your relationship doesn’t just mean your favourite bands are from different decades.

As you approach retirement together, that age gap becomes a factor in decisions about when you retire, and in planning how much money you need to save and how it should be invested.

Especially if the younger partner is a woman, an age difference can mean you need your money to last longer. Women outlive men on average, which adds additional years to retirement.

As a couple, your retirement time horizon should be computed from the longest life expectancy of the two of you, says Kathleen Hastings, a certified financial planner with FBB Capital Partners in Bethesda, Md.

For example, in the U.S., a woman who is 45 years old today and reaches full retirement age at 67 can expect to live an additional 21 years, to age 88. A man who is 50 today and lives to 67 is expected to live an additional 18 years, to age 85.

But as a couple, they may need to draw on their retirement savings from the time he turns 67 to the time she turns 88, a significantly longer span of 26 years — and many financial planners would add a few years to that projection as extra insurance.

To plan for those extra years in retirement, mixed-age couples should save more, work longer and invest with an eye toward the longer life expectancy in the relationship, says David Hunter, a certified financial planner with Horizons Wealth Management in Asheville, N.C.

“The older someone gets, the more conservative they tend to be,” Hunter says. “But when you’re coming at it from two different ages, if the older person can stomach the volatility, you should probably invest with the younger person’s time horizon in mind. You’re trying to prepare your assets to be around for that second individual.”

Couples tend to want to retire together, which can tempt a younger partner to take early retirement in order to align with the older partner’s retirement plans.

But doing so could result in several financial drags on the couple, Hastings says. “Someone has to make sacrifices to make up for that loss of income, and you either do that by working longer or saving more.”

If retiring at the same time is important to you, consider whether the older partner can work longer to meet the younger one at his or her full retirement age, or use a retirement calculator to figure out how much more you’ll need to save to accommodate those extra years of distributions rather than contributions.

All of this requires planning, so as with all things retirement, the earlier you get a road map in place, the better, Hastings says. “People often don’t think about this until it’s too late.”