Mind the 'age' gap

Martin and I are 10 percenters. That is, we are among the 10% of couples who have an age gap of more than 10 years. This never bothered us when we met 14 years ago, but the 12 year age gap is sure bothering me now I have to do retirement planning!

I've spent the last few months trying to get a handle on it. Along the way, I've managed to identify a number of important things to take into account as 10 percenters. I have not yet come up with a concrete strategy to work - to apart from spend less, save and invest more - so that is going to take some time over the next few months

The plan has to be based on my predicted lifespan

For couples of approximately the same age, retirement planning usually spans 30 years. Our has to span 40+. My life expectancy is 84, nearly 40 years away, and with advances in medical science I estimate that I will need to plan to live until I am at least 95. Seriously. The NHS calculate that UK women have a life expectancy of ~84 today but by 2030 - just 12 years away - that will rise to ~ 87. Yikes!

I have to retire early

Most couples make plans to retire together, perhaps do some travelling, but generally kick back and enjoy some time together. I will still be working when Martin retires and if I retire at the normal 65 he will have spent the greater part of his retirement alone and may not be in the best of health by then. Having a job working from home will help, as we can see each other every day, but going on holiday for long periods of time may not be possible while I'm still working. This means if we want to spend quality time together while DH is still fit and active, I have to retire early, 55 ideally, so we have to save and invest a lot more money to build a bigger pot.

We have to take bigger risks

To build up our retirement accounts, we have to take greater risks with the money to get better returns. This means holding (allocating) higher percentages of stocks and shares (equities) than would ordinarily be recommended. 

For a man of DH's age, it is usually recommended to hold no more than 40% in equities and 60% in bonds. For me it is the other way round, in fact, I could go higher with an 80/20 equities/bonds allocation as I am only in my 40s and therefore have a longer timespan to invest in. Some financial planners suggest it is important that investing is based on the age of the younger of the couple, not the older or their conservative approach will cause 'fiscal drag'.

We may have to delay taking the state pension

In the UK, for every nine weeks you delay taking the state pension you get a 1% increase, which equates to 5.8% increase if you delay for a full year. Depending on how we are building up our retirement accounts, this may have to form part of the planning. 

We have to consider long-term care costs

With Martin 12 years older than me, we may need to find the money for care costs, however, I may still need living expenses so we need to plan to ensure that we don't exhaust our accounts making sure he is cared for, leaving nothing for me. 

I will inherit less of Martin's pensions as I am a 'trophy wife'

Yes, that's right. Being 12 years younger means that DH's firm consider me a 'trophy wife' and, therefore, instead of getting 50% of Martin's final salary occupational pension when he dies, I get a reduced sum. That amounts to 2.5% less for every year between us over 10 years, so 5% less. 

We will have to use drawdown options, never annuity

All defined contribution pensions offer you a choice when you are ready to take them; you can either use the sum of the pension pot to buy an insurance policy that pays you a fixed amount for the rest of your life (annuity) or you can choose to drawdown a certain amount of money from the pot every year (3-5% a year perhaps) Drawdown pots can be inherited, annuities cannot. To maximise our income in retirement, it will have to be drawdown all the way so I we can inherit each other's full pension pots.

I'm going to need software to work it out

This is pretty complicated stuff, requiring Excel skills beyond my abilities, so I've recently bought a monthly subscription to a site called RetireEasy. You plug in all of your numbers for  household income, pensions, savings, etc., make estimates based on how much you think they will grow over time (very tricky!), and it obligingly spits out a snapshot that tells you whether what you think you have will be enough. See that big dip at 55 in the picture above? That's the age I set for me to retire. It's telling me we won't have enough to live on after we've paid the mortgage (our mortgage ends when I'm 62 and DH 64). I either have to retire later, we have to live on less or put more money in. I have a tendency to be pessimistic in my estimates so it will probably not be as bad as that but there is no harm preparing for the worst and hoping for the best.

One thing that RetireEasy doesn't have is a monthly breakdown of income, so on the side I am filling in the gaps. I may find as my knowledge grows and I want to test different possible outcomes in our retirement that RetireEasy is too basic, but for now it has been very helpful.