As couples prepare for retirement, a common scenario can impact their financial planning. They may move from living on two incomes to one, especially when one spouse retires before the other.

While many couples plan to retire at the same time, staggered retirement happens more often and for many reasons:

One spouse retires early for a medical concern.
One spouse suffers a job loss.
Other priorities, like caretaking for elderly parents, force one spouse to retire early.
One spouse may want to work longer to finish up a project at work.

Pre-retirees can benefit from learning about how to make the transition to a single income. Long-term retirement success starts with having a plan and using some of these ideas to help.

Maximize Retirement Savings

During regular employment, any spouse who thinks of retiring early should contribute as much as possible to their retirement accounts. Catchup contributions can further pad savings in advance of retirement.

If retiring before the end of a given year, be sure to increase retirement savings percentages in order to maximize savings. For example, if you are going to retire in March, then increase your 401(k) savings percentage as much as possible so you can utilize the full year savings maximum.

Live with One Income, Now

Before the first spouse retires, try to live off a single income for a year. The goal is to live as if that transition to one income has already happened. If it is a truly impossible task, it is better to know before retirement happens.

During this time, it will be helpful to track expenses and spending categories so you have a full picture of what the single-income lifestyle will look like.

What should you do with the extra funds not being spent during this practice period? Funnel the maximum amount into your employer retirement account, and use the rest to build up your cash reserve.

Aggressively paying down debt like a mortgage or credit card will also lessen budgetary pressures on retirement.

Talk About Post-Retirement Plans

With one spouse working and another retired, it can be challenging to find harmony, especially if the retired spouse has expensive plans.

When both spouses are done working, hobbies and travel are group decisions and require group effort. However, if the retired spouse plans to pick up an expensive habit while the other is working, it can lead to frustration or resentment.

Does the retiring spouse want to be a stay-at-home spouse? Or do they want to work part-time? Asking these sorts of questions now will make the transition easier.

A couple should discuss what they want life to look like when one is retired and when both are retired. There should be some money in the retired spouse's budget to enjoy themselves, but it should not come at the cost of financial stability. The goal, as always, is to avoid unwanted surprises.

Discuss Health Insurance

For many couples, health coverage depends on both having employment. One reason that one partner may remain working while the other retires is for employment-based health insurance.

Medicare is an option for an older spouse who is retiring and eligible to enroll, but what about the other partner?

A spouse’s retirement is often a qualifying event to allow the other partner a special enrollment period to choose a health insurance plan. Short-term health insurance can be a stopgap if that partner plans to retire and take Medicare soon.

Whatever option works best, it is important to have a plan for health coverage before retirement happens. This way, nobody is left without this insurance.

Set Up an Emergency Fund

An emergency fund is critical, no matter where a couple is in their life or financial journey. It’s important to have several months of living expenses set aside as extra cash. Consider the cost of home or vehicle repairs, health costs, and even travel or hobbies.

Setting an emergency fund aside helps ensure a buffer against the unexpected. It gives couples money to draw on for emergency purposes, like an unplanned early retirement. This “rainy day fund” becomes more important once retired.

Tax Planning

Becoming a one-income household means tax planning, as this impacts the couple’s tax bracket and payments. An overall lower income can make for a lower tax bracket, or couples could be eligible for new credits.

The spouse who is still working can contribute to a tax-advantaged account, especially beneficial with a 401(k) match. Retirement itself will impact taxes, so it is wise to plan now to avoid unpleasant surprises.

Another opportunity in regard to lower income may be utilizing tactics such as Roth conversions, which should involve a discussion with a fiduciary financial planner and accountant. These are the sorts of discussions our financial planning firm in Bethesda, MD, has with clients as part of their comprehensive financial planning.

Work with a Financial Planner

Many financial and lifestyle considerations exist for couples nearing retirement. You will benefit from planning when it comes to tackling taxes, saving for emergencies, adjusting your budget, and figuring out what to do with the unspent income before retirement.

The best way to make the most of your current wealth and plan for long-term success is to work with a skilled financial planner.

Our firm’s financial planning process is designed for evolving lives. We are well-versed in pre-retirement planning and advice for mid-career professionals. The sooner you and your partner can envision a healthy financial future, and the sooner you act on plans to reach that goal, the better.

We’re here to help, so don’t hesitate to get in touch for advice or information, or to get started safeguarding the future you desire.

Discuss your situation with a fee-only financial advisor.

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