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Douglas Boneparth

Retirement Planning > Spending in Retirement > Lifestyle Planning

How to Plan When One Spouse Retires While the Other Keeps Working

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When one spouse retires and the other continues to work, “It’s important to pay attention to the psychological component,” Douglas Boneparth, founder and president of Bone Fide Wealth, tells ThinkAdvisor in an interview.

“There could be everything from jealously and animosity to uncertainty all the way to everyone is happy doing their own thing,” the financial advisor explains.

Boneparth, 37, has seen it all as a certified financial planner for 12 years, 10 of them as an independent financial advisor.

The one-spouse-retires/one-works arrangement allows greater distribution flexibility because of the income generated by the working spouse, he notes.

From his office in downtown Manhattan, Boneparth specializes in helping millennials and has $90 million in client assets under management.

There are several pluses to half a married pair continuing to work — among them, less reliance on retirement assets.

Also, it reduces income tax, and there’s a possibility that the working spouse’s group health care plan may be superior to and more affordable than Medicare coverage, Boneparth points out.

Further, if you’ve stopped working, there’s likely no longer the need to maintain individual disability and life insurance polices, so those premium payments will be eliminated.

Still, several other big decisions need to be made, like when each spouse should start receiving Social Security benefits and when to begin spending from a retirement account.

In the interview, Boneparth highlights the necessity of a comprehensive financial plan spanning a wide range of contingencies and options.

He has been helping people since his college days, when he worked part time at his father’s Ameriprise Financial practice in Florida.

At 23, he relocated to New York to join another Ameriprise advisor’s business and began building his own book on the side.

He went independent in 2012, first with a partner, then going solo four years later. Two years before, he received an MBA in finance and management from NYU’s Stern School of Business.

ThinkAdvisor recently interviewed Boneparth, who was on the phone from his office at 7 World Trade Center.

The advisor, whose undergrad degree is a B.S. in public relations from the University of Florida, announces that he has “just rebranded retirement.”

“The classic definition, ‘I’m not going to work anymore,’ is a little antiquated,” he says.

In the interview, he reveals what he believes is a more up-to-date characterization.

Here are highlights of our conversation:

THINKADVISOR: What should clients be sure not to overlook when one spouse retires and the other continues to work?

DOUGLAS BONEPARTH: It’s important to pay attention to the psychological component. 

There could be everything from jealousy and animosity to uncertainty all the way to everyone is happy doing their own thing. I’ve seen it all.

What actually is “retirement” nowadays?

I just rebranded “retirement” to “financial independence.” The classic definition, “I’m not going to work anymore,” is a little antiquated.

A better definition: Retirement is when not working is optional and affordable. You’re not reliant on [earning] income in order to live comfortably.

When one spouse in a couple plans on retiring and the other wants to continue working, for whatever reason, would that change their retirement plan?

Not necessarily. You have an advantage when one spouse keeps working: an income stream coming in, which obviously allows for a little more flexibility. 

The reliance on retirement assets is less than if both were retired with no earned income being generated.

So this [strategy] actually favors planning. It provides more flexibility in what it takes to re-create the level of income needed to live a similar lifestyle during retirement years.

What are some issues that particularly need to be addressed in the retirement plan?

The best time to take Social Security; the best time to begin drawing down assets from a retirement account. 

And how one spouse’s ability to continue earning money may provide less of a burden on the need to draw down those assets.

What about health care insurance?

There’s a lot to think about. The ability to stay on the working spouse’s group benefits comes into play versus enrolling in Medicare.

In some cases, you might get better health insurance through the working spouse by continuing to be on group health care than through Medicare.

This will come down to a cost-benefit analysis. If the premiums are cheaper and the benefits more robust staying on the spouse’s plan, then you would choose that versus Medicare.

Should the retired spouse start taking Social Security benefits while the working spouse waits to do so?

Here’s my rule of thumb: If you need Social Security to live on, then, obviously, take it starting at full retirement age. 

Otherwise, it’s likely worth waiting till age 70 to claim — and get a bigger benefit — assuming you think you’re going to live well into your 80s.

Does income tax decrease when one of the spouses retires?

Yes. It’s a good strategy for that. If the household is now experiencing less taxable income because one spouse is no longer working, there may be opportunities to take advantage of certain tax-planning strategies. 

In fact, the couple might be having historically low taxable income.

One thing that pops into my mind is the ability to do a Roth conversion from pretax retirement dollars to Roth dollars.

That way, money can grow tax-free and come out tax-free. Of course, this would be part of a greater planning strategy. 

But it’s popular for retirees to take advantage of the low tax rates on portions of their retirement money that are pre-tax.

Suppose the couple has a 401(k) plan. What’s best to do with it?

With 401(k)s, [participants] have four options: Leave it where it is, roll it over to an IRA, take the money out and pay taxes on the distributions — no one chooses to do that; it’s silly. Or you can transfer the plan to a new [employer’s] plan if you continue working.

Rolling it over to an IRA generally gives you greater flexibility and greater investment options in managing that money. 

You might have higher or lower costs.

Would you still maintain insurance policies? 

If you have an individual disability insurance policy — versus group benefits — when you’ve stopped working, there’s very little reason to continue supporting those premiums. 

So there’s potential savings there. This could be meaningful monthly savings. The same goes for life insurance, depending on estate planning needs.

For both types of insurance policies, I suggest revisiting the coverage you have.

Suppose a couple wants to handle retirement the way we’ve been discussing; but despite one spouse’s working, they realize they won’t have enough money to live on. Are there reasonable options?

You let the analysis bring clients to conclusions. If you [create] a plan for them showing that the assets and income they’ll be receiving aren’t sufficient to carry a certain lifestyle — based on a number of assumptions — they’ll conclude, hopefully, that the spouse can’t afford to stop working and that they need a hybrid method, like part-time work [for the retired spouse].

This is why planning is so critical. You’ll see how the couple’s assets would fare in terms of Social Security and their ability to continue to support a certain lifestyle with one spouse working and ultimately both not working.

You don’t want to retire and then figure out whether or not it’s going to work. You want to have a pretty good idea of how things will work before you retire.

If the retired spouse is forced to go back to work, it’s a demonstration of poor planning.

What happens if the retired spouse misses working and wants to reenter the labor force? What would that do to their plan?

It would only improve it to add another earned income. 

But they would need to ask: Are they going to be happy if that spouse is back in the workplace?

Alternatively, what if the working spouse wants to retire along with the already-retired spouse?

In financial planning, you just don’t pick one scenario and go for it. When we work with clients, we look at a multiplicity of scenarios.

Clients want to look at options, including part-time work, and what if they stop working at certain ages? Would [they be receiving] 50% of what they were making? Or 25%?

There are so many ways to reach the goal they’ve set for themselves.

You specialize in serving millennials. Is retirement planning something you delve into with them?

Absolutely. The oldest millennials are now 41 [already]. There isn’t a single financial plan I’ve delivered to a millennial that didn’t have an entire retirement-planning [section].

It’s critically important because you need to give young investors or millennials or young professionals — or anyone — the context they need to understand what it takes to get to financial independence.

Without that, it’s like throwing a dart at a wall without a dartboard. You’re going to hit something, but are you going to hit what you want?

So any generation, but particularly young people, needs that context to understand what they’re working so hard for.

Why is having a specific retirement plan so important?

I’m a firm believer that anyone who writes things down has a higher degree of probability that they’ll achieve their goal.

Writing it down and seeing what it takes to get there almost automatically increases the probability of achieving that goal.

Apart from money, what else should couples in this scenario be aware of? 

Retirement is a big psychological event and the biggest change second to settling down and having a family.

When one spouse has financial independence and the other is still working, it creates an interesting dynamic.

The spouse who’s still working may love what they do; and it gives them purpose. In addition, they’re still earning a paycheck.

But the couple may not even need that paycheck to retire comfortably.