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Client question: My partner and I have a 15-year age difference between us. We have no children but we hope to have one soon. Is there anything specific, in terms of financial planning, that we should be thinking about in our situation?

Answer from Natasha Knox, a fee-only certified financial planner and founder of Vancouver-area based Alaphia Financial Wellness: It’s great that you’re thinking about this now. When there is a large age gap in a relationship, you will have all of the standard financial planning considerations, along with a few others. To answer your question, I have made a couple of assumptions about your situation.

  • That you are both in your working years right now
  • That the older partner is the higher income earner, simply due to being further along in their career path

One of the biggest questions that will affect everything else is: Do you plan to retire at the same time?

If you do plan to retire at the same time, you will need to account for an extra-long retirement for the younger partner. For example, if you and your partner decide to retire when the older of you is 65, the younger of you will only be 50.

For the younger partner, that could mean leaving the work force during their peak earning years, saving less, contributing less to the Canada Pension Plan, and most significantly, based on the younger partner’s age, those assets could potentially need to last 50 years. Careful planning and saving now will be crucial to ensure that the younger of the two of you doesn’t outlive their assets.

What is your plan if either of you suffers a major illness or becomes unable to care for yourselves? Make sure that you have suitable incapacity planning documents such as powers of attorney and advance directives in place. You’ll also need to consider critical illness and long-term care insurance, in case of a serious illness or the loss of the ability to live independently.

Having appropriate life insurance, and estate planning in place is vital for every couple. When there is a large age gap, the life insurance needs for both partners may become augmented. A sizable income disparity often creates a large insurance need on the life of the partner earning more to ensure that the younger partner and, in your case possibly a child, is adequately provided for.

One significant element that is often missed in such partnerships is the value of the income of the younger partner – particularly when there is a large income disparity in the early years of the relationship. However, as the younger partner become more established in their career, the contribution may increase significantly.

This becomes an especially salient issue when a couple are not planning to retire at the same time. Often the plan relies on the younger partner working for some length of time after the older partner retires. Too often, the younger partner’s income is not adequately insured. Once you have a child, the older partner will need to consider the financial impact of raising a child while nearing or even during retirement if the younger of you were to die.

Income splitting is a potentially big opportunity when there is a large age gap. Spousal registered retirement savings plans often make a lot of sense when there is an age gap, and the older partner is also the primary income earner. If you’re planning for a staggered retirement, then having the older and (assumed) primary income earner contribute to a spousal RRSP for the younger partner can result in increased flexibility, future income splitting, and potentially a significantly longer tax deferral.

Lastly, make sure that both partners are involved in financial and planning conversations. A common pitfall is a financial pattern in which the older partner manages the macro family financial issues such as the investments, taxes and legal aspects, without including the younger partner. This can lead to problems down the road, especially if the person handling the finances loses decision-making capacity. Make sure that relationships with financial professionals are shared relationships, so that both partners have a clear view and understanding of the family finances.

If you’re planning for an asynchronous retirement, you may also need to have a conversation about the impact on your relationship of a financial role reversal as your incomes potentially become more equal over time. There may even come a point where the younger partner becomes the primary economic contributor in the family.

This shift in dynamics can be highly challenging to both parties particularly if there are aspects of self-worth attached to individual economic contributions, and professional identity. As with any change that ushers in a new dynamic, it must be navigated with an abundance of understanding and compassion.

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