Couples and Retirement Planning
When retirement is far away, it’s hard for couples to focus on it. But the sooner you start talking to your spouse or partner, the better. The two of you may not be on the same page in terms of what you want to do and how you want to spend your money.
“It’s one of those things that’s so far ahead, we’ve never really talked about it,” Beth Ann says. “But we’re halfway to retirement.” They know they want to travel when they retire, but they don’t know how much money they’ll need to do that— or how much they’ll need to live on.
- Compare notes with your spouse or partner. What’s more important to you: Retiring early or contributing to your children’s college fund? Does your spouse agree? Do you know when he wants to retire, and what he wants to do?
To help couples sort through these issues, Wells Fargo Advisors uses a tool called Envision priority cards. Each card has a different retirement goal printed on it. And each spouse or partner is asked to order the cards in terms of importance.
“What we often find is that those cards come back in different orders,” says Greg Denton, manager of life event services for Wells Fargo Advisors in St. Louis. “The couple hasn’t talked and really come to an agreement about what is most important.”
- Save a lot. Even though the Stasiowskis are trying to save, it may not be enough. “We think people without children should save 20% of their income, and people with children should save 25%,” says Marcia Tillotson, a financial advisor for Wells Fargo Advisors in Charlotte, North Carolina.
Couples with children need to save more because of college expenses. But the percentages quoted above are rough targets. Experts agree that if you and your spouse can’t save quite that much, priority should go to funding retirement over tuition. Working with a financial advisor is a good way to figure out what you need to be saving and what you can save, realistically.
- Assess your insurance needs. As long as you have dependents, it’s important to have enough life insurance to support them should you die prematurely. And dependents include your spouse, who might need help saving for retirement.
Your best bet: Seven to 10 times your annual income in 20- to 30-year level term insurance. This is inexpensive life insurance with a level payment (in other words, the premium stays the same) for 20 or 30 years, whichever suits your needs. For example: You could buy a $500,000, 20-year life insurance policy for $300 a year. That means you will pay $300 each year (level) for the next 20 years, which is the length (or term) of the policy. If you die during that 20 years, your descendants would get $500,000.
If your employer offers life insurance at work, experts recommend buying half your insurance there (it's cheaper, because you get a group rate) and cover the balance by purchasing a private policy on your own. So if you need $500,000 of term life insurance, buy $250,000 of it at work and $250,000 on your own. That way, if you leave your job and you can't take your work life insurance with you, you still have some coverage.
- Work on your estate. If your children are under 18, a will names a guardian in the event that both you and your partner die. A healthcare power of attorney allows you to choose someone who can make end-of-life decisions regarding your care, while a living will explains how you want your medical care handled if you can’t speak for yourself.
- Take a look at your cash flow. “You can’t possibly plan for retirement until you know what your current lifestyle costs,” Tillotson says. For a snapshot, go back through the last 12 months of credit card statements and check registers. “We want Christmas in there … we want vacations and high gas bills in wintertime,” she says. Once you get the whole picture, you’ll be able to plan accordingly.
- With your partner, agree on your goals and make them finite. Say you and your spouse want to buy a place at the beach. What you need to do is identify a location, a price point and a year by which time you expect to accomplish this goal. Once you know you’d like to spend $250,000 on a cozy place in Costa Rica by 2020, you can start making it happen.
- Update your estate. As you and your spouse get older, you may want to shift some responsibility to your adult children. Maybe one should be the executor of your estate. You also want to take a hard look at the beneficiaries on your life insurance policies, annuities, retirement accounts, and so forth. Remember: These beneficiaries will have priority over anyone named in your will.
- Consider long-term care insurance. This coverage is an important option for you now, because you don’t want one spouse’s nursing home bills to wipe out resources for the surviving spouse. Ideally, you’d want to purchase a policy before age 60, when rates rise.
- Have a plan. If you haven’t done so already, consult a financial advisor to discuss how to deploy the assets you have. If either you or your spouse is passionate about work, consider continuing on a part-time or contract basis.
- Be flexible. Just because you and your partner have a certain amount of money saved, that doesn’t mean you’re going to receive a set amount of money each month for the rest of your life. Your assets may have the occasional bad year, so be prepared to tighten your belt accordingly. “When your assets drop, you want to withdraw the least,” Tillotson says.
- Consider tapping your tax-deferred savings last. Before you start taking distributions from retirement accounts (like a 401(k), an IRA, or Roth IRA), think about siphoning off everything from your other accounts ((regular savings, for example). You want to delay paying taxes as long as possible. If your kids wind up inheriting assets in your retirement accounts, they will have more flexibility in terms of the taxes they’ll have to pay.
*These people are not currently clients of, employees of, or affiliated with Wells Fargo & Company. Their story is presented for informational purposes only.
- Couples can prepare for retirement in different ways at different life stages.
- In your 30s or 40s, it makes sense to compare notes with your spouse or partner, assess your life insurance needs, and work on your estate.
- In your 50s and 60s, you can look at your cash flow, make your goals finite, and consider long-term-care insurance.
- In retirement, consider meeting with a financial advisor and withdrawing money first from non-retirement accounts (such as savings accounts).