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No worries, changing subscription plans won’t cause anyone to lose any of their content, including playlists and saved music; and everyone can keep their same Spotify accounts.
The billing switches automatically for users who already have a Premium Individual subscription and are joining a Premium Family plan; so your wife doesn’t need to cancel anything. After accepting the invite to join your Premium Family plan, she won't be charged for her account any further; all payments will instead be handled by the Premium Family plan manager (the person who started the plan).
You can invite your wife to your Premium Family plan by following these steps. Bear in mind that to accept the invites, members must live at the same address as the plan manager. Also keep in mind that members can only switch between Premium Family (or Premium Duo) plans once a year.
Note that if your wife has Premium with a partner company (such as a phone or internet provider), she’ll first need to cancel with them and wait for her current Premium to end before being able to join your Premium Family plan.