Retirement Planning for Couples with an Age Gap: Insights and Strategies (Part 2)

When you meet the love of your life, age is just a number. But when it comes to retirement planning, an age gap can be a big problem that requires careful thought and planning. As Newcastle financial advisers, we have helped many couples through this journey. Today, we will share a real-life example of how planning can deliver a great retirement for both partners.

Age Gap Couples Retirement Problems

Age gap couples have retirement challenges, particularly when it comes to managing their retirement income and having enough to live the lifestyle they want. One of the biggest challenges is the difference in preservation age, which can impact when each partner can access their superannuation. For example, if one partner is 60 and the other is 55, the younger partner can’t access their super for 5 years. This can create a retirement income gap, so age gap couples need to plan carefully and consider strategies like income splitting or delaying retirement.

Sarah and John: Bridging the Age Gap

Sarah (55) and John (68) had a common problem for age gap couples: different retirement timelines and goals. John was ready to retire and travel the world, Sarah was passionate about her career and wanted to keep working. Instead of letting these differences cause tension, they turned them into opportunities by talking openly and planning strategically.

How They Made It Work: A Retirement Income Strategy

Here’s how Sarah and John planned for retirement:

First, they reviewed their current situation, including their total super balance and existing contributions. They used various tools and calculators to estimate their retirement needs and adjusted their personal contributions accordingly. Understanding the concessional contributions cap was key for them as employer contributions count towards this cap, and going over it would mean higher tax. This made them consider their total super balance and contribution limits before making extra contributions.

Next, they estimated how much income they would need in retirement using tools and calculators from financial services. These calculations helped them work out their retirement readiness and also the limitations of estimating income based on age gap between partners.

1. Work-Life Balance Solutions

They found ways to combine travel with Sarah’s career:

  • Used 6 months of Sarah’s long service leave for extended travel
  • Negotiated remote work (30 hours/week) for 6 months
  • Transitioned Sarah to contract work so she could travel between projects
  • By 60, Sarah was working 4 days a week, keeping income and flexibility

2. Tax Management Through Superannuation

They maximised tax benefits by planning:

  • John started an account based pension, tax free income. Investment earnings in super are taxed at 15% but, converting super savings to a pension can be a big tax benefit if you’re over 60 and tax free on earnings.
  • Managed their super fund to support their lifestyle while Sarah maximised super contributions
  • Balanced immediate needs with long term financial security

3. Centrelink and Government Age Pension Planning

They optimised their assets:

  • Made a $360,000 non-concessional contribution to Sarah’s superannuation
  • Allocated $30,000 for travel expenses
  • Structured assets so John could qualify for a partial Age Pension
  • Created additional income streams while keeping flexibility

The income test is the key to qualifying for the Commonwealth Seniors Health Card. This test looks at adjusted taxable income and deemed income from account based income streams, not assets. Unlike other qualifications, there is no assets test.

Services Australia provides financial information and resources to help you prepare for retirement. They offer free webinars and online tools and say they are important for your financial planning.

4. Long Term Security

They secured Sarah’s long term financial security by:

  • Buying a Lifetime Annuity for guaranteed income
  • Understanding the transfer balance cap for those considering retirement income streams, as going over it can mean extra tax, especially for death benefit income streams
  • Asset allocation for long term stability
  • Diversification of risk across their portfolio

Age Gap Couple Planning

Based on Sarah and John’s experience here are the key areas every age gap couple should consider when working out how much income they need in retirement:

Retirement Income Needs

Retirement income needs is critical for age gap couples. They need to consider their individual and joint living costs and their desired retirement lifestyle. A financial adviser can help them work out their retirement income needs and create a plan to achieve their goals. They need to consider the government age pension, account based pension and other income sources and tax and personal circumstances. By working out their retirement income needs age gap couples can make informed decisions about their super and retirement planning.

Retirement Lifestyle Planning

Think about how different energy levels and health stages will impact your retirement activities. This might mean:

  • Prioritising certain activities earlier in retirement
  • Planning for changing mobility needs
  • Creating flexibility so both partners can have what they want

Financial Planning

Develop strategies for both immediate and long term needs:

  • Structure super and income streams for both partners
  • Optimize Centrelink benefits where possible
  • Plan for longevity risk through diversification
  • Consider guaranteed income streams through products like annuities

Estate Planning

Protect both partners through:

  • Updated wills and beneficiary nominations
  • Powers of attorney
  • Trusts where applicable

Inflation and Investment Risk

Inflation and investment risk is critical for age gap couples. Inflation can eat into their retirement income and investment risk can impact the growth of their super. To mitigate these risks age gap couples can diversify their investments, invest in assets that perform well in inflationary environments and seek professional advice from a financial adviser. They can also use dollar cost averaging and regular portfolio rebalancing to manage investment risk. By managing inflation and investment risk age gap couples can ensure their retirement income lasts throughout their retirement.

Your Own Success Story

While Sarah and John’s story is helpful, every couple is different. We’ve seen many different age gap retirement planning scenarios here in Newcastle and each requires its own approach.

Takeaways from their story:

  • Start with open and honest conversations about goals and fears
  • Consider solutions that work for both partners
  • Focus on long term security while enjoying today
  • Get professional advice to get the most out of your strategies

Need Help with Age Gap Retirement? Contact a Financial Adviser

As your local Newcastle financial advisers, we know the challenges that age gap couples face when planning for retirement. Whether you’re just starting to think about retirement or looking to refine your existing plans, we can help you develop a strategy that works for both partners.

Contact our Newcastle office today to talk to us about how we can help you create a plan that suits your different timelines, priorities and needs.

Missed Part 1 of this series? Read our article “Essential conversations to have

Note: This information is general in nature. For personalised financial advice, please consult with our team of licensed financial advisers.

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