As couples plan for retirement together, the life expectancy of each partner is a component that must be factored in.
When the two partners have a large age gap between them, time takes on a whole new meaning.
"The biggest challenge is timing a mutually beneficial retirement together," said Rick Salmeron, certified financial planner at the Salmeron Financial Network in Dallas. "The situation where one foot is in the water — the older spouse — and one foot is still in the boat — the younger spouse — can be difficult."
A key goal for any couple is "maximizing retirement income while both are alive and maximizing income for the survivor after one spouse, usually the older spouse, passes away," said Wade Chessman, certified financial planner at Chessman Wealth Strategies in Dallas.
"This challenge is not necessarily unique to couples with a large age difference," he added. But in those cases, "it is more likely that the surviving spouse will be single for a longer period of time, which adds additional stress and complexity to their situation."
If the younger spouse is the wife, planning is even more important because women statistically have longer life expectancies than men.
"If the younger spouse is a healthy woman, this could imply an even longer retirement period than if the younger spouse is male," said Lynn Lawrance, certified financial planner at Financial Network Investment Corp. in Dallas.
Here are the main areas that couples with wide age disparities need to consider:
Salmeron said one aspect that May-December couples need to look at is how they treat their retirement savings plans, such as 401(k)s and IRAs.
Those plans require you to start withdrawing money at age 701/2; based on your projected life expectancy. That's called the required minimum distribution.
"But if your spouse is at least 10 years younger than you, there is a separate table that provides a smaller distribution requirement and therefore reduces your annual taxable income," Salmeron said.
"The larger the age gap, the smaller the distribution requirement," he said. "As a result, couples with a major gap in their ages should consider contributing as much as possible to the older spouse's qualified plan."
That will enable the older spouse to access the funds at age 591/2; while limiting the size of the required minimum distribution, he said.
When a spouse dies, the surviving partner is typically advised to roll over the deceased's IRA into the survivor's own IRA.
But Chessman said that in the case of the older spouse passing away first, "it may make more sense for that spouse to move the IRA of the deceased spouse into a beneficiary IRA."
That's because "distributions from such an inherited IRA are not subject to the 10 percent early withdrawal penalty," he said.
The older spouse should consider delaying taking Social Security benefits until age 70, Chessman said.
"Each year you delay taking Social Security beyond full retirement age, you receive an 8 percent increase in benefits," he said. "When a spouse passes away, the surviving spouse is eligible for either their own benefit or the deceased spouse's benefit, whichever is higher. By delaying benefits, the surviving spouse would possibly be eligible for a higher benefit over a longer period of time."
A big age gap should put health care discussions on the front burner "because those issues may become reality sooner than they would for a younger couple," Salmeron said.
"Each spouse should talk about what each would do if one were to get sick. What resources will the other person have to deal with it? How would you both handle it if someone is disabled in some manner?"
Lawrance recommends long-term care insurance for both spouses "because you never know what's going to happen."
Just ask Becky and Gary Dennis.
Becky, 42, said the emphasis of their financial planning had been on her husband because he's 51.
But that was turned upside down when Becky contracted encephalitis four years ago on a business trip.
"Just because you're young doesn't mean that things aren't going to happen," she said. "We had a false sense of protection about us and especially me, thinking, 'OK, well, we will have to worry about him before me.' "
Now the couple want to make sure they have more liquid assets for emergencies.
"For us, it's not having all our money tied up in long-term investments," Becky said. Instead, their focus is on "having enough padding for short-term needs that maybe we wouldn't have had before."
It's also helped put things in perspective, Becky said.
"The house in the mountains was always a dream, and now it's easier to let go of that dream because I want to know we have enough money in case anything happens," she said.
"If the couple has kids, the death of a spouse can be financially shattering," Salmeron said. "And despite the probabilities, the older parent doesn't always die first."
For that reason, he said, "life insurance is critical for both spouses," even though the older spouse will pay more.
"If the younger spouse dies, what happens to the kids if the older spouse passes away before they're on their own?" he asked.
"A much younger spouse can have big time implications for your estate," Salmeron said.
This is especially true in cases of blended families where one or both spouses have children from previous marriages.
If you have children, you can set up a trust called a Qualified Terminable Interest Property.
This "allows a spouse to receive income and distributions from the trust at the first spouse's death," Salmeron said. "At the second spouse's death, the remainder goes to other heirs named."
May-December couples needn't let wide age disparities threaten their finances. By considering their unique circumstances and incorporating those into early financial planning, they can ensure a secure financial future.