One Retires, One Works: Navigating the Transition Together

When one partner retires while the other continues to work, couples can face a mix of tax changes, emotional adjustments, and relational dynamics. These shifts require careful planning and open communication to ensure both partners feel secure, supported, and understood. Addressing both the financial and emotional aspects of a staggered retirement can smooth the transition. Let’s first look at the tax considerations, followed by the emotional and relational factors. 

Tax Considerations for Couples 

Retirement can significantly change a couple’s tax situation. Here are key tax factors to address: 

1. Income Shifts and Tax Bracket Changes
   When one spouse retires, household income usually drops, which may place the couple in a lower tax bracket. This can provide an opportunity for tax planning. For example, the retired spouse can begin withdrawing from retirement accounts (like IRAs or 401k’s) at a lower tax rate. However, if the working spouse continues to earn, large withdrawals may push the couple into a higher tax bracket, negating the benefits. Planning withdrawal strategies carefully is crucial, and your financial planner is a key partner in navigating these opportunities.
2. Social Security Strategy
   The timing of Social Security claims affects both the household’s income and taxes. Retirees are often anxious to start taking Social Security benefits immediately but if they haven’t reached full retirement age (67, if born in 1960 or later), their benefits will be reduced permanently. On the other hand, if they wait until age 70 to start their benefits, they will receive an 8% per year increase to their full retirement age benefits for every year they wait plus any cost-of-living adjustments added to Social Security for the years in between. Whenever they start receiving benefits, only part of their Social Security is taxed (up to 85%, depending on your household income) providing some welcome tax relief. 
3. Health Insurance and Medicare
   If the retired spouse is not yet eligible for Medicare, they’ll need to secure health insurance—potentially through COBRA or the marketplace—which can add to expenses. Once both spouses are eligible for Medicare, higher household income can increase premiums for Medicare Parts B and D. Understanding these costs and how they affect the tax picture is important for long-term financial planning.
4. Tax Deductions and Retirement Accounts
   With one spouse no longer working, tax-deductible contributions to retirement accounts like IRAs may change. The working spouse may still contribute to a spousal IRA, which provides tax benefits. Reviewing tax strategies annually can help ensure both partners are taking full advantage of available deductions.

Emotional and Relational Factors 

While the financial side is critical, the emotional and relational impacts of one partner retiring should not be overlooked. Here are the key emotional aspects couples should navigate: 

1. Identity and Purpose
   Retirement can be a big shift for the spouse leaving the workforce, as it often involves more than just a change in routine—it can also lead to a loss of identity. Work often provides structure, purpose, and a sense of accomplishment, so stepping away from it can create feelings of uncertainty or even emptiness. The retired partner may struggle with this loss, while the working spouse might not fully understand the emotional weight of the transition. Open conversations about these feelings are essential for navigating this adjustment together.
2. Time Together vs. Time Apart
   When one partner is working and the other is retired, it can create mismatched schedules. The retired spouse may feel lonely or frustrated by the working spouse’s limited availability, while the working spouse may feel guilty or overwhelmed. It’s important for couples to communicate about how to spend quality time together while also allowing for personal space and individual activities.
3. Financial Dependency
   The retired spouse may feel a sense of financial dependency, while the working spouse might feel the weight of being the primary income earner. Discussing expectations and responsibilities openly can help prevent resentment. It’s important for both partners to feel like equal contributors to the relationship, regardless of financial dynamics.
4. Adjusting to New Roles
   Retirement often shifts household roles, with the retired spouse potentially taking on more domestic responsibilities. This can lead to tension if the division of labor isn’t clear or if one partner feels overwhelmed. Having open discussions about roles and responsibilities helps maintain a sense of balance and mutual respect.

Navigating the Transition Together 

When one partner retires and the other continues working, it’s essential to address both the financial and emotional aspects of this transition. By proactively planning for tax implications and fostering open communication about emotional needs, couples can ensure a smooth, supportive adjustment to this new phase of life. A balanced approach to both finances and relationships will help set the stage for a fulfilling and secure retirement for both partners. 

Disclosures: 

Apella Capital, LLC (“Apella”), DBA Apella Wealth is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product or any non-investment-related content made reference to directly or indirectly in this material will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may not be reflective of current opinions or positions. Please note the material is provided for educational and background use only. Diversification seeks to improve performance by spreading your investment dollars into various asset classes to add balance to your portfolio. Using this methodology, however, does not guarantee a profit or protection from loss in a declining market. Past performance does not guarantee future results. All data is from sources believed to be reliable but cannot be guaranteed or warranted.   

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