Should Working Couples Retire Together?

Physician's Money Digest, August 2006, Volume 13, Issue 8

It's bound to happen at some point for workingcouples. One spouse gets the itch to retire or isforced to retire because of poor health or job loss.Because couples typically like to retire together,tough questions emerge: Should the other spouseretire or continue working? What impact will retiringtogether have on the couple's income and futureretirement benefits?

According to a recent study by the Center forRetirement Research at Boston College, husbandsand wives retire in the same year in one of five marriages,and half of all couples retire within 2 years ofeach other. As the study noted, "married couplesoften try to retire together." But this decision hasgrown much more complex in recent decades asmore wives have joined the labor force, work fullcareers, earn improved incomes, and participate inretirement plans. As a consequence, retiring close toeach other may entail financial trade-offs.

The following are several financial and nonfinancialissues that couples will need to weigh whendeciding whether to retire together:

•Social Security. Assume that both workingspouses are age 62 or older and are thus eligible forreduced or full Social Security retirement benefits. Onespouse retires and begins collecting benefits. The secondspouse generally is entitled to receive either amonthly check equal to half of the amount of themonthly benefit their spouse receives, or an amountbased on their own earnings—whichever is larger. Anexception for spouses collecting half of their spouse'sSocial Security benefits occurs if they are part of a governmentpension plan not covered by Social Security;then their benefits may be reduced or even eliminated.

Consequently, if the retiring spouse earns a considerablyhigher income than the other spouse, the secondspouse could immediately retire without diminishingtheir total Social Security benefits. But if thesecond spouse is earning income comparable to orhigher than the retired spouse, the decision is moredifficult. That's because the longer the second spouseworks, the higher their individual Social Securitybenefits will likely be when they ultimately retire.

This trade-off is especially an issue when there aresignificant age differences. Say a husband retires atage 66 with full retirement benefits, but his wife isonly 62 at the time. If she retires right away andstarts collecting monthly benefits based on her ownearnings, those benefits will be reduced from whatshe would have collected had she worked to her fullretirement age.

•Private retirement plans. Age and income differencesare also important when figuring in benefitsfrom employer retirement plans. Assume that bothspouses work for employers with traditional pensionplans that pay lifetime annuities, but one spouse is 5years older than the other. As with the Social Securityillustration, if the older spouse retires at their plan'snormal retirement age, and their younger spouseretires too, the younger spouse won't be able to maximizetheir pension benefits.

The same consequences apply when spouses participatein defined-contribution plans such as 401(k)s.Should the younger spouse retire when the olderspouse retires, then the younger spouse no longer isable to contribute to their retirement nest egg.

•Health benefits. Increasingly crucial these daysfor retirees is the challenge of maintaining health carecoverage should they retire before they qualify forMedicare. Say the husband retires at age 65. He's eligiblefor Medicare, but his 63-year-old wife won't beeligible for 2 more years. The federal COBRA programcovers only up to 18 months. Unless heremployer offers a subsidized retiree health care plan,she'll probably have to either keep working or findpotentially expensive private coverage, for which shemay not qualify if her health is poor.

•Nonfinancial issues. The decision whether toretire when your partner retires is further complicatedby nonfinancial factors. If one partner retires—particularly early due to poor health or job loss—theother person may not be psychologically ready toretire. Couples sometimes have conflicting visions ofretirement—one wants to relax at home while theother wants to travel. Issues like these should beironed out before both retire.

Easing into retirement through reduced workhours, if possible, can help reduce financial and nonfinancialconflicts, but it's most important to weighthe trade-offs before deciding.

Reprinted with permission from the Financial Planning Association (,the membership organization for the financial planning community.