‘DIEN’s – The NEW ‘DINK’s
Published on January 29, 2019
Retiring when both spouses work – How to unwind the “DINK” “DIEN” (Double Income Empty Nester)
Few married couples retire at the same time; this pattern has major implications for the way that married couples unwind the 'DIEN'.
What happens when married couples that both work are ready to retire; but not at the same time? This is a reality that retirement researchers have been digging into lately: the fact is that few married couples retire at the same time.
A recent study based on data from the University of Michigan Health and Retirement survey found that the pathways people take to retirement are complex, frequently involving phased-retirement, bridge jobs, and periods of non-employment and returns to work. Decisions often are impacted by eligibility for pensions, on-the-job stress, physical limitations and care giving responsibilities often associated with aging parents.
A common transition to retirement for married couples typically includes one spouse working longer than the other. Katherine Carman, a senior economist at Rand Corporation and lead author of the study, found that these patterns were apparent for a majority of couples: She studied 2,600 couples and found 1,400 unique “retirement pathways”.
"We tend to think that people retire at the same time, but when we take a longer approach and look at multiple years, we see much more diversity," she says.
The younger the households studied, the more likely they are to experience fully or partially “discordant retirements”. The phenomenon also was more common in couples with larger age differences.
While these findings are not surprising considering the evolution of retirement in recent decades, the results do have planning implications for married couples.
It’s standard practice to create retirement plans with projected individual retirement dates. However, today those calculations are arrived at in a different way. It is very common for retirement income planning to include multiple retirement dates and ‘bridge income’ planning.
“From a planning standpoint, it’s not the math, but the conversations that are key”, states Tim Lofton, Director of Planning for Cornerstone Consulting Group. “Making sure our clients are on the same page is the most important first step.” “I believe we create great value as both a sounding board and coach in this role.” We have been “doing retirement” for 25 years, but this is our clients first time adds Lofton. “For the client, it is complex, stressful, and can be a point of contention; especially if both spouses are not on the same sheet of music.”
Some common issues and opportunities: Age Gap
A recent survey by Fidelity Investments found that 43 percent of married couples disagreed about the age when they will retire, and 54 percent don't know how much they will need to save for retirement (including 46 percent of people who already are retired or getting close).
What to do when one spouse is ready to retire, but the other spouse feels they are too young or not financially independent enough to hang it up during the “high earning years”? What if there is contention about one spouse “sitting at home all day while I am still working”? How do we pay for health insurance if we retire before age 65 Medicare eligibility?
As you can imagine, the math is the easier part of the equation. The challenge is creating a planning environment where both spouses are encouraged to explore what they each want for this next chapter of life. For an advisor, this is the key component to really creating value in the planning process. Both spouses need to feel heard and both need to understand that each is allowed their own picture of retirement. Only after completing both paintings, can you start to craft and combine those into one final masterpiece.
This planning must include a deep dive into expectations and visions for retirement—both as partners who plan to retire at different times and also if and when they plan to be retired together. For example, if one spouse plans to retire at 60 and wants to spend the next five years working in a part-time position with less stress, and the other partner plans on retiring at 65, then the discussion should be about financially planning for this loss of income for five years, and then full retirement for both. This is where “bridge income” planning comes into play. That is where we look to investment savings to cover a short period of time to get us to our full retirement income plan.
Working with a firm that specializes in retirement planning is key. A majority of firms do not specialize in retirement planning. Today the focus is and has been on “accumulation” and “wealth management”. While this is significant for the 40 years leading up to retirement, it simply is not the same path for post-retirement planning. Are you retired? Do you still own the same things you owned when saving for retirement? For most, the answer is yes. This simply does not work in retirement. Finding a firm that has retirement as focus is not easy. You should look for a firm that has an Elder Law Attorney, Estate Planning Attorney, CPA and Financial Planning as part of the process. They should be working in a fiduciary role, putting your needs above those of the firm or advisor.
Retirement planning goes well beyond a couple one-on-one meetings and an annual review. To fully understand the Essentials of retirement, you must work through the process. In other words, you should have a Retirement Blueprint™.
The delayed filing credit—an 8% annual guaranteed rate of return—remains the best deal on the planet. Starting benefits at 62 —the earliest possible claiming age—will reduce your benefit by 25 percent for life. By waiting until after the full retirement age to start benefits, a claimant gets the delayed retirement credit, which works out to 8% for each 12-month period of delay.
The challenge, of course, is meeting living expenses while waiting to claim. That can be done through drawdown of savings (bridge income); Meyer & Reichenstein research has shown that this strategy can result in improved overall retirement outcomes. But living on continued income as one spouse keeps working is even better.
The spouse with the higher expected Social Security benefit should claim based only on the expected lifetime of their spouse. If one spouse lives well past the point at which the higher earner turns 80, most couples’ cumulative lifetime benefits will be highest if the higher earner delays benefits until age 70, Meyer & Reichenstein have found.
Continued income from one spouse helps insulate couples from the post-retirement ‘unexpected’, such as unexpected health care expense or a large home repair. Steady income also could enable the retired spouse to pursue ‘non-traditional work’, such as consulting or other opportunities that may not provide the steady paycheck.
In some situations, staggered retirement enables both spouses to stay on employer-subsidized health insurance, reducing premium and out-of-pocket costs for healthcare. This can be especially impactful if one spouse is no longer working but has not yet reached the age of Medicare eligibility (65) and might otherwise face high (unsubsidized) premiums on the Affordable Care Act insurance exchanges.
It also opens the door to the triple threat of better retirement outcomes: More years of saving, Fewer years of drawdowns and Delayed Social Security filing.
The bottom line is that with so many scenarios, it is essential to get advice when trying to wade through the myriad of options that is ‘DIEN’ – you are the new and improved DINK, plan accordingly 😊
Data Products of the Center for the Study of Aging Katherine Carman, a senior economist at Rand Corporation
Couples & Money Study Survey by Fidelity Investments
Retirement Revised Meyer & Reichenstein