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Retirement Strategies for a Non-Working Spouse

by Rick Pendykoski


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It isn't unusual to find people diligently planning their careers and retirement. A lot of households may have a working couple, but it is important to remember that there are many households that run on a single income. Non-working spouses may include stay-at-home partners, those who are handicapped or physically incapable of working, or for other personal reasons. This means that their retirement strategy should include a plan for both spouses, regardless of their earnings from outside the home.

The retirement needs of households with a non-working spouse are comparable to those of the working partner. This means that the living expenses for both must be accounted for, without the benefit of a second paycheck. Let us look at common retirement strategies that help the non-working spouse save for retirement.

Spousal IRA

Spousal IRA is like a regular IRA, with the exception being that it is opened in the name of the non-working spouse. To be eligible for spousal IRA, you must be married, file taxes jointly, and contribute an amount equal to or less than you and your spouse's combined earned income for the year.

If the non-working spouse is 50 years and older, the yearly contribution limit is $5,000 or $6,000. The working partner can contribute $5,000 to your non-working spouse's IRA for a total contribution of $10,000 a year and $12,000 if you are over 50 years of age.

One of the major drawbacks of this IRA is the contribution limit set on it. When you have to contribute to two IRAs, one for yourself and other in the name of your spouse, the contribution limit is doubled. If you and your spouse qualify individually for each, you can have a Traditional IRA for yourself and a Roth IRA for your spouse, or any such combination.

Social Security

Through Social Security, the non-working spouse can independently collect 50% of what the working spouse receives without having paid into the system, after the working spouse files. For example, if an amount of $1,000 is collected in a month, then your spouse can independently collect $500 for a total of $1,500. The non-working spouse is eligible to generate income once he or she reaches retirement. If they don't have any independent Social Security benefits, they can even continue to collect 50% after the working spouse has died.

The non-working spouse can collect the 'spousal' benefits at retirement, and this benefit usually amounts to 50% of the monthly Social Security payment that is received by the working partner. The amount will vary depending upon the age at which the benefits are first claimed. There are some minimal restrictions. If you start collecting Social Security benefits at the age of 62, your benefits will reduce by 25% and your spouse's benefits will be reduced by 50%. Even if the non-working spouse is older than the working one, he or she cannot start collecting Social Security until the working spouse does. If the non-working spouse is younger, then even if you have started collecting the Social Security benefits, he/she cannot do so until they reach the retirement age. However, the only exception to this is when the non-working spouse is caring for a child younger than 16 years.

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It is crucial to remember that Social Security alone will not be enough to meet the financial requirements of retired couples. Every couple must have other retirement strategies in place to build their retirement income.

If your spouse is self-employed instead of being unemployed, he or she will have to pay 15% income in Social Security Tax. This means they would be able to collect Social Security independently. A self-employed spouse can also open a Keogh or SEPIRA plan and/or a Solo 401(k) and contribute on his or her own behalf.

It is important for couples to remember that it is equally important for the non-working spouse to save for retirement as funding for the working one as the retirement assets are shared amongst the two. Retirement planning for two using one income isn't as simple as it sounds. The working spouse must check the eligible criteria and be wise about investing in the retirement plan. Even though the maximum annual contribution limit may not seem a significant amount of money, if you contribute that amount each year, you could make a real difference in retirement savings over time.


Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He regularly writes for blogs at MoneyForLunch, Biggerpocket, SocialMediaToday, NuWireInvestor & his own blog for Self Directed Retirement Plans. He writes about topics related to retirement planning, investing, and securing future.

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