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I recently made the decision to retire early. My wife did not. She continues to work the same number of hours at her same job.

Our path enables me to be free of a job I was burnt out on, improves family dynamics, and allows us to live with financial abundance.

No decision is without trade-offs. Having one spouse working when the other leaves their career creates new challenges at the same time it solves others. Retiring before my wife produces new relationship stress, limits financial and personal options that would be available if we were both retired, and creates unique risks.

There are major personal and financial implications for partners retiring at different times. They need to be considered to determine if this strategy makes sense for you.

Pro: Gaining Freedom Sooner

I burnt out in my career as a physical therapist. Working in a service industry locked me into a cycle of needing to trade time to make money. I didn’t think changing employers would improve my working conditions. Retirement looked like my best option to free myself.

My wife also wanted to retire early. After the birth of our child, these desires increased.

Three years ago, she took a new job that allowed her to to work thirty hours per week with benefits. Her new position had schedule flexibility and allowed working from home. Her company was family friendly, emphasizing a work-life balance for its employees. She enjoyed her new work and loved the company she was working for.

Despite her near ideal work conditions, she still lacked freedom. Because she was working less than I was and not commuting, most day to day activities to keep our house functioning fell to her. Though she enjoyed her work, the combination of work, parenthood, and running our household was often overwhelming.

We built substantial resources to give us financial independence, but were afraid to use them. Uncertainty around the health insurance market, current market conditions, and our long retirement time frame made the idea of retirement intimidating.

Retiring first gave me much more freedom. It freed up fifty hours per week which I previously spent at the office or commuting. I now spend my days focused on projects and hobbies that interest and excite me.

Part of my time now goes to the household tasks my wife used to do. So despite continuing her same work schedule, she has more freedom with her time now as well.

Her continued income provides us additional freedom. We’re able to live with an abundance mentality, with little financial worry.

Con: Freedom is Limited

When one spouse is retired and the other is not, freedom is limited. My wife’s working conditions are about as good as one can expect. Still, she often reminds me that just because I’m retired, it doesn’t mean she is. She has regular weekly meetings to attend, deadlines to meet, and required hours to meet her contractual obligations.

I’m working as well, producing content and promoting this blog, working on a book, and doing most of the housework. But I have total freedom over my time. Other than occasional meetings or appointments, I have no specific time constraints.

I can get outside any time I want. I can travel for prolonged periods of time. But I’m still limited, because the person I want to spend my time with most does not have that freedom.

It’s easy to romanticize retirement as the time when you trade your job for freedom. I know I did. Now that I’m on the other side, it’s become abundantly clear that freedom is still limited.

It’s vital to realistically think about what retirement will be like so you don’t set yourself up for disappointment once you achieve the retirement you’ve worked so long and hard to obtain. Retiring when your spouse continues to work limits your freedom.

Pro: Improved Relationship Dynamics

Since I retired, my wife and I both have seen an improvement in our relationship. When we were both working, days would go by when we couldn’t seem to find five minutes to talk.

Since I quit working, we spend quality time together every day. Most days we take a long walk together and talk. We reserve a day each week to be together by ourselves while our daughter is in preschool. Several nights a week we cook together, and we eat our meals as a family.

I also felt limited connection to my daughter when working. I would typically wake at 4:30 every morning to workout, write, and get myself ready for work. My wife took care of everything with our daughter. I would scoop my daughter up on my way out the door to work and drop her at daycare. I picked her up around 5:30 each evening. By that point, we all were tired and she still needed fed, showered, and prepared for bed, which occupied most of the time we had before putting her down around 8 pm.

Since retiring, the three of us spend the hour between waking her and taking her to preschool eating breakfast, talking, and reading books together. I usually pick her up early in the afternoon and we spend our afternoons on the ski slopes, at the library, or playing at home.

My availability and willingness to help around the house freed up more time for my wife to bond with our daughter as well. Only I retired, but our whole family dynamic has improved dramatically.

Con: New Relationship Strains

My retirement has been a net positive for our relationship, but having one spouse working while the other is not creates new stress. This is something we recognized could be an issue prior to me leaving my job.

We’ve worked hard to set and meet expectations of each other. We also work consistently on communicating and making adjustments.

Still, there are periods of resentment, frustration, and misunderstanding. My wife occasionally feels frustrated and resentful of the amount of time and freedom I have, while she still at times feels too busy. I get frustrated when her work restricts things we could otherwise be doing, or she is tired after working a full day when I’m eager to go do something. At times, we fail to appreciate the benefits of what the other is bringing to our relationship.

This could easily create problems in a relationship without careful planning and ongoing communication. Robert Laura covers these challenges well in the Forbes article, “When Husbands Retire First”.

Pro: A Working Spouse Can Qualify for Employer Provided Medical Insurance

The most common question and concern we get is how an early retiree can obtain medical insurance. The ultimate answer is always the same. There’s no good universal option.

Having employer provided medical coverage for our family solves this problem for us as long as my wife works and her employer offers this benefit. This may be the biggest advantage to having one spouse continue working after the other retires. My wife is required to work at least 30 hours per week to qualify for medical coverage.

Her situation is typical. According to the Kaiser Family Foundation, only 21% of employees who worked less than 30 hours/week are offered health insurance by employers, compared to 72% of employees who work 30 hours or more. It may make sense to have one spouse work enough to qualify for insurance benefits.

Unfortunately, this is not an option for many. Many companies are eliminating health insurance benefits for employees’ spouses. This is consistent with a trend of trying to control costs by cutting health insurance benefits.

One working spouse can create challenges if that work does not provide medical insurance for the entire household. Even if it does, having one spouse work can produce additional risk for an early retiree.

Con: Income Can Make Medical Insurance Much More Expensive

If a household needs to buy medical insurance through market exchanges because employer provided coverage isn’t offered, there is great incentive to keep household income low. This is a good reason to work until you’re comfortable with very little income, ie., both spouses would retire or work little.

Kaiser Family Foundation provides a Health Insurance Marketplace Calculator that helps determine your subsidy and out of pocket expense based on age, family size, and geographic location. This allows you to experiment with different scenarios.

Using our situation with a family of two adults in our early 40’s and a young child, a small income of $24,000 would get us over 100% of the Federal Poverty Level (FPL). This would entitle us to a $1,371/month subsidy and require us to pay only $40/month ($480/year) for insurance coverage for a silver level plan available to our family in our geographic area.

The most we could earn and still qualify for a subsidy would be about $81,000. With this income, our subsidy would be $766/month and our out of pocket premium costs would be $645/month ($7,740/year).

If our income increased just $1,000 more to $82,000 year, it would push us above 400% of the FPL. Harry Sit terms this the “subsidy cliff”. There would be no subsidy and out of pocket costs for insurance premiums would jump to $1,412/month ($16,940/year).

ACA subsidies provide great incentive to keep income low in retirement. While health insurance is a big reason we elected to have one spouse continue working, health insurance subsidies could be a reason to opt for both spouses retiring.

Con: Relying on Employer Provided Medical Insurance Increases Risk Of Limiting Future Options

An alternative to traditional medical insurance for an early retiree is the use of health sharing ministries (HSM). A HSM is less expensive than traditional medical insurance premiums.

One reason HSM cost less than traditional medical insurance is because they are not medical insurance, so they don’t have to comply with regulations that govern traditional insurance. HSM can deny someone with a pre-existing condition.

If we had to make a decision today, we would consider a HSM. My family is healthy and would be able to enroll in a HSM at reasonable cost. Each year we kick the can down the road on making a long term decision on medical insurance is a year we could develop health issues. Thus, we are adding risk that by the time we may need a HSM, it may no longer be an option.

Pro: Tax Advantages of Having Only One Income

Many people reading this may be on the fence, unsure whether they have enough to retire. One option is semi-retirement. Having some ongoing income can decrease stress on a portfolio.

There are different ways to accomplish this. Both members of a couple could cut back simultaneously, or one spouse could leave the workforce while the other continues to earn income. In either scenario, substantially decreasing income has two major tax benefits.

The first benefit of reducing income is that earned income will be taxed more favorably. A couple filing taxes married filing jointly can earn $24,000 free of federal income tax using the standard deduction. They can earn an additional $19,050 taxed at 10%. The next $58,350 is taxed at 12%.

This gives a married couple filing taxes jointly the ability to earn $101,400 before marginal tax rates jump to 22%. If they earned up to this threshold, they would pay only $8,907 in federal income tax, an effective rate of 8.8%.

Earnings beyond this are taxed at their marginal rate, jumping to 22% and progressing as high as 37% for the highest earners. Every additional dollar is taxed at the higher marginal rates. This gives incentive to keep taxable income in the lower tax brackets to earn more tax efficiently.

There is a second incentive to keep earned income in lower marginal tax brackets. Qualified dividends and long term capital gains for those with income in the 12% marginal tax bracket or below are taxed at 0%. These same investment earnings for those in higher tax brackets are taxed at 15-20%. This can provide substantial tax savings for someone contemplating early retirement who is likely to have a sizable taxable investment portfolio.

Con: Having A Working Spouse Limits Retirement Tax Strategies

Conventional wisdom for those planning early retirement is to maximize tax-deferred savings. With a long retirement time frame with little to no income, you can utilize tax rate arbitrage, deferring taxation of money that would have been taxed in higher brackets when earned and recognizing it in lower brackets in retirement.

Utilizing Roth IRA conversions, a married couple with no earned income could convert $24,000 from a tax deferred account to a Roth account utilizing the standard deduction, and pay no income tax on this money. A couple could convert over $100,000/year, up to the top of the 12% tax bracket, and pay low tax rates as shown above.

When you have a spouse working, or otherwise earn income with semi-retirement, you fill up lower tax brackets with earned income. This limits or eliminates the effectiveness of Roth IRA conversions.

Remember also that while most people think of the Affordable Care Act (Obamacare) as a health care law, it is essentially a tax law. It is advantageous for those obtaining health care on public exchanges to keep income relatively low (less than 400% of the FPL) to obtain subsidies and limit out of pocket costs. Having a working spouse or other earned income can make this a challenge.

Worth the Tradeoffs?

Several factors led us to make the decision to have me retire while my wife kept her job. My unhappiness at work was carrying over into our home. We had saved enough that we didn’t need the rat race and high taxes that came with a two income household.

At the same time, my wife’s continued work alleviates financial stress, provides affordable medical insurance for our family, and gives us most of the flexibility and freedom of full retirement. While not a perfect situation, the positives clearly outweigh the negatives for us.

Everyone has to decide what  is best for yourself and for your family. Having one spouse retire before the other is a strategy that can create a better lifestyle more quickly.

[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. Now he draws on his experience to write about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. You can reach him at chris@caniretireyet.com.]

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