As a couple, what should you do…and NOT do…when planning for your retirement? As you can imagine, every situation is different, and individualized advice is best. However, there are some general dos and don’ts that will apply to most people.
Talk about everything. Talk about your feelings about work, location, and yes, most definitely your finances. There are some interesting quizzes you can take together in popular magazines; these are helpful conversation starters.
Think hard about what your days will be like after you stop your career. For Baby Boomers, due in part to our Maslow self-actualization mindset and also to the realities of the economy (including the demise of pensions for most people), retirement may not mean a total cessation of employment. It could mean cutting back on hours, or doing something different (even starting a business). But if you are going to stop working cold turkey, you had better know what you’re going to do each day. Otherwise, you may be facing an early death. While there are no scientific studies of which we am aware that prove this, there seems to be enough anecdotal evidence to get your attention.
Yes, you have to do this. And frankly, it’s better to do it with someone who’s done it before…say, several hundred times. What? You don’t know that many retirees? I’m talking about a financial advisor who doesn’t sell financial products. These professionals have run projections and scenarios for many different people hundreds of times. Plus, they’ve coached their retiree clients through their trials and pitfalls after they’ve retired. So they have seen the good, the bad, and the ugly, and can provide valuable guidance.
Reduce debt and go into overdrive on putting money into savings and investments. If you cannot afford to do that, then you probably cannot afford to retire. It is good—VERY good—to learn to live on less than you have been making, because you will probably have to do that for the rest of your life in retirement.
Get up to speed on Medicare, and whether you will have (or need) any supplemental coverage. There is a healthy variety of options, and you should fully understand the one that will be best for you.
You’ve made it this far together, and you know marriage is give and take, respecting each other’s strengths and opinions. Retirement planning is as much about emotions as it is about the gritty details about dollars. The financial brain in the family mustn’t dominate the conversation and the conclusions, but neither should the “fun” one!
Don’t assume you can move to a new (warmer) location, leave all your friends and family, and think that the change of venue will automatically make you happier. And don’t assume that moving nearer to your children and grandchildren will be idyllic. Try it out for an extended period of time BEFORE you retire. You’ve built up enough vacation time…go take 4 weeks and spend it in the place you’re thinking of moving to. Go play golf every single day, and figure out if that’s really what you want to do…every day…for the rest of your life.
Quick example: Two couples, each have $1 million in investments. Couple “A” has it all in after-tax investments; couple “B” has it all in IRA’s and 401(k)s. If couple A withdraws $50,000 the first year, taxes will be minimal; if couple B withdraws the same amount, they could be paying $10,000 - 20,000 in taxes on the amount withdrawn. All investments are not equal. Plus, creating too much taxable income could cause Social Security to get taxed.
Don’t start collecting Social Security without understanding all of your options and the best claiming strategy for your particular combined situation. If you don’t know what “file and suspend” means, it is time to get educated! Not doing so could cost you tens of thousands of dollars, irrevocably.
Don’t over-think and fret about your investments. The number one determinant of investment results is not the investments themselves! It is investor behavior. Yes, we’re talking to you! Most small investors do the wrong thing at the wrong time based on, you guessed it, emotions. Get unbiased advice, make good decisions together, and then stick with your plan.
As you can tell, planning for your retirement as a couple is a multi-faceted and complicated effort. It should be a wonderful time of your life together, but without looking at that picture from different angles and perspectives, it could end up differently than you had imagined.
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Photo Credits: Advice on discussing planning for retirement with your partner; Check Man, Cross Man and Jump Man © ioannis kounadeas - Fotolia.com