Whether you’re newlyweds or approaching your golden anniversary, some of the key decisions you’ll make as a married couple involve retirement. The more planning you do on the front end – figuring out when, where and how to retire, and, of course, how to pay for it all – the better your chances for enjoying a comfortable and rewarding experience once you leave the workforce. Here are five strategies to help you and your spouse retire with the greatest financial and personal advantage.
Make It a Team Effort
Although each spouse is ultimately responsible for his or her own retirement, it makes sense to save for retirement together. By making retirement saving a team effort, both of you may be better positioned to reach your mutual goals. If your spouse doesn’t have a 401(k), for example, consider adding a little more pre-tax income to your own plan if you haven't maxed out your permitted contribution. Or if one of you doesn’t work outside the home, consider a spousal IRA – a tax-deferred investment account that allows a working spouse to contribute to a nonworking spouse’s retirement savings. (For more, see: Making Spousal IRA Contributions.)
Align Your Retirement Goals
You and your spouse might have the same retirement goals – in which case, planning will be relatively easy. Often, however, each spouse has a different vision of their ideal retirement. You might dream of retiring early and in some exotic destination overseas, while your spouse would be happy to keep working forever and remain in the home you’ve shared for decades. It’s important to discuss your big-picture goals, financial and otherwise, in the early stages of retirement planning – and touch base often. The sooner you’re aware of each other’s goals, the easier it is to work toward a retirement you’ll both enjoy. (See also: How to Dream Up the Right Retirement Goals.)
Plan for the Younger Spouse If There’s an Age Gap
If there’s a significant age gap between you and your spouse, it’s key that you build your collective retirement plan and savings target with the life expectancy of the younger spouse in mind. Doing so helps ensure they’ll have adequate income and assets later in life – when they may be a widow or widower. If you follow age-based asset allocation guidelines, be sure to use the younger spouse’s age. A typical portfolio for a 60-year-old, for example, would contain about 40% stocks. But if that person's spouse is only 50, a more aggressive approach is recommended. Also, since you and your spouse will likely have a longer combined retirement, you may need to scale back on the amount you withdraw from your portfolio each year to make sure your nest egg lasts. (For related reading, see: The 4% Retirement Withdrawal Rule: What to Know.)
Stagger Your Retirements
While it may sound like a lot of fun to retire at the same time, it can be difficult to make such a large adjustment together. By retiring simultaneously, your income will stop abruptly, which can be a shock to your household finances. You’ll also limit the number of years you have to save for retirement, and you might need to tap into your retirement assets sooner. Something else to consider: You could potentially reduce your Social Security benefits if you start collecting benefits early to offset the loss of income. (For more, see: Journey Through the 6 Stages of Retirement.)
What's more, retirement can be emotionally tricky. For spouses with jobs, it's a major adjustment to lose the sense of identity you developed throughout your career. And, no matter how much you and your spouse love each other, the extra free time you’ll both have in retirement can challenge your relationship in new and sometimes unexpected ways. Many two-career couples find it’s easier to stagger the day they each say farewell to the office. That way, each spouse has time to adjust to a new lifestyle and daily routine before trying it together. And if just one of you is retiring, remember that the stay-at-home spouse's life also changes in significant ways when a partner is suddenly around all day long.
Maximize Your Social Security Benefits
In May 2016, the file-and-suspend loophole was phased out. This strategy had been used by couples to increase Social Security benefits by taking advantage of spousal benefits and delayed retirement credits simultaneously. The new legislation also means that anyone born in 1954 or later won’t be able to use the “restricted application” to collect a spousal benefit while letting their own benefits rise. Filing for spousal benefits is now deemed by Social Security to trigger your own retirement benefit as well. (Note: If you’ve already used these tactics, don’t worry – you’re grandfathered in.)
That said, there are ways for married couples to maximize their Social Security benefits. The best strategy for many couples is to wait as long as possible to start collecting benefits. Once you reach full retirement age (age 66 for the generation reaching retirement right now), every year you delay taking Social Security (up to age 70) adds 8% to your future monthly payments. Your Social Security benefit may include spousal and survivor benefits. The spousal benefit is worth half the higher-earning spouse’s benefit; spouses who worked part time need to figure if their own benefit or their spousal benefit provides more support. If the higher-earning spouse dies first, the surviving spouse receives 100% of the higher earner’s benefit amount. There are many online Social Security calculators that can help you and your spouse figure out the best claiming strategy.
The Bottom Line
Retirement is a major financial and life transition, and it’s important to keep an open line of communication with your spouse as you figure out when, where and how to retire – not to mention, how to pay for it. Keep in mind that retirement planning is a work in progress. You can’t always count on your planned retirement date, for example, since changes in the economy, your company and your health can change that. Likewise, it's impossible to know how many years of retirement you need to plan for: While there are plenty of statistics that can help you guess how long you'll live, you never really know. Using these strategies conservatively can help ensure you and your spouse enjoy a comfortable retirement.