Sorting out your pension so you know how much money you and your partner must live on in retirement is a crucial financial planning exercise.
Get the sums wrong and you could find you are struggling to pay the bills.
But retirement planning for couples of different ages is complicated.
Many couples approaching retirement simply tot up their pensions and savings and take that as their income once they give up work – but it’s not.
The dilemma is when to stop working and when to start drawing on retirement savings.
The problem is staggered pension dates for couples.
Staggered pension payments
It’s not unusual for one partner to a few years older than the other – but the impact this has on income planning for retirement is huge.
Take Pete, 61, and Heidi, 59. They both have a state retirement age of 66, but Pete reaches the milestone three years quicker than Heidi.
That means missing out on state pension payments of £8,296 a year for three years if they both retire at the same time.
If they don’t give up work together, their ability to travel and enjoy life together slips away.
Research suggests couples need £18,000 a year to pay the bills and at least £26,000 a year to enjoy a fuller retirement.
Generating replacement money for Heidi’s state pension means having a £200,000 fund invested returning at least 4% a year – which is well beyond the means of most retiring couples.
Set some savings goals
The likelihood is one or both will have to work part-time until Heidi is 66.
It’s never too early to plan for retirement. If Pete and Heidi realised that their pension income would be staggered over several years before levelling out, they could have considered saving some extra cash.
Over several years, that missing £25,000 is an easier target to hit compared to finding out you need the cash when you are already on the brink of retirement.
The starting place is checking the current value of savings and investments, and if you can, project this for when the first spouse retires and then forward until the second gives up work.
With a pen and paper, you can work out pension income for each month to see how the amount fluctuates and when you have enough money for both spouses to retire.