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Given typical assumptions about changes in expenditures in retirement versus earning years, retirement advice and calculators do not appear to adequately address retirement planning for couples with several years of separation in age. Simply splitting the budget and addressing each individual's retirement separately seems to ignore complexities such as investment draw-down when household income is still present.

What is the best way to plan for retirement when a couple is separated by several years in age (10 years for purposes of discussion), assuming both work until a similar retirement age?

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    For starters, look at the rules for Required Minimum Distributions from IRAs and 401k, 403b, 457 etc plans. These do take into account the case when the spouse is more than 10 years younger than the owner of the retirement account (and is the sole beneficiary of the retirement account). Commented Aug 21, 2014 at 14:31
  • That's great advice, I wasn't aware there are rules to take into account.
    – anders-hou
    Commented Aug 22, 2014 at 1:24

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Retirement calculation, in general, should be based on the amount of money needed per year/month and the expected life expectancy. Life expectancy, if calculated to 90 years (let's say) indicates that post retirement age (60 yrs.) your accumulated/invested money should generate adequate income to cover your expenses till 90 years.

The problem in general is not how long you shall live but what would be your expected spending from retirement to end of life expectancy.

The idea is at the minimum your investments should generate income that is inflation adjusted. One way to do this is to consider your monthly expense now i.e. the expense that is absolute minimum for carrying on (food, electricity, water, medicines, household consumables, car petrol, insurance, servicing, entertainment, newspaper etc.) this does not contain the amortizable liabilities (home loan, child's education, other debts). It is better to take this amount per family rather than per person and yearly rather than monthly (as we tend to miss a lot of yearly expenses).

This amount that you need today will increase at a Compounded Annual Growth Rate (CAGR) of the average inflation. For example, if today you spend 100 per year in 7 years you will need to spend appx. 200 at 10% inflation.

Now, your investments will not increase post your retirement, so your current investment needs to do two things (1) give you your yearly requirement (2) grow by a fixed amount so that next year it can give you CAGR adjusted returns. In general, this kind of investment grows by high net amounts initially and slowly the growth decrease.

The above can be calculated by Net Present value (NPV) formulae (http://en.wikipedia.org/wiki/Net_present_value).

The key is to remember that the money that is invested when you retire should be able to give you inflation adjusted returns to cover your yearly expenses. How much money you need depends on your life style/expectation and how much return is received depends on the instruments that you invest on.

As for your question above on the difference between the age of you and your spouse, it better to go with the consolidated family requirement and get an idea of how much investment is necessary and provision the same as soon as possible from your as well as your spouse's income.

Hope this helps.- thanks

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