Not knowing your spouse's favorite childhood memory or their
favorite animal probably isn't going to jeopardize your relationship, but not
knowing how they envision retirement could lead to some major financial
problems when you're older. If you two have radically different ideas of what
retirement looks like, you may not save enough for both of you to do the things
you enjoy.
Rather than take
this risk, find a few minutes to play the following "How well do you know
me?" game with your spouse.
1. How do you
want to spend retirement?
Knowing how you want
to spend retirement is essential to figuring out how much you need to save. You
might be perfectly content sitting in a rocking chair on your front porch, but
if your partner wants to travel the world, you're going to need a lot more cash
saved up.
Take some time to
talk to one another about your ideal retirement and make note of any major
expenses associated with that vision. Then, estimate how much those things
would cost so you can determine how much you need to save to cover it all.
2. When do you
want to retire?
Your timeline is the
other major factor that determines how much you need to save for retirement. If
you're just starting to save and you have 40 years to go until retirement, you
won't have to set aside as much each year as someone with only 20 years to
build up their nest egg.
You and your spouse
can talk about when you'd like to quit working, but understand that you may
have to adjust your timeline slightly depending on how much each of you can
afford to save per month. Make sure you're both in agreement about when each of
you will retire, so one person doesn't feel cheated if the other retires first.
3. How much do
you have saved for retirement already?
To be fair, the
answer to this question will change by the day as your investments go up and
down in value. But getting a rough idea is helpful for identifying how close
you already are to your goal.
Dig out your
retirement plan statements and look them over. Talk about how much each of you
contribute to your retirement accounts annually or per paycheck, and decide if
either one of you needs to start saving more based on the retirement plan you
began crafting above.
If one spouse
doesn't work, talk about opening a spousal IRA in that person's name to more
evenly distribute the savings and possibly help you save more each year. A
spousal IRA is a regular IRA opened in the name of a non-working spouse that a
working spouse may contribute to -- as long as they earn enough money during
the year to cover the contributions, as well as any contributions they make to
their own retirement accounts.
4. When do you
want to start Social Security?
The age you begin
Social Security affects the size of your checks, and by extension, how much you
need to save to cover the full cost of your retirement. If you want the full
benefit you're entitled to based on your work history, you must wait until your
full retirement age (FRA). That's 66 or 67 for today's workers. You can figure
yours out, as well as your estimated benefit amount, by creating a my Social
Security account.
You can sign up as
early as age 62, but every month you claim benefits before your FRA reduces
your checks slightly. Beginning as soon as you're eligible will only net you
70% of your scheduled benefit if your FRA is 67, or 75% if your FRA is 66. You
can also delay benefits up to age 70, and your checks will increase to as much
as 124% of your scheduled benefit if your FRA is 67, or 132% if your FRA is 66.
The right claiming
strategy depends on each partner's goals and life expectancy. If you want the
most money overall and believe you'll make it to your 80s, you're better off
delaying benefits at least until your FRA. But if you don't believe you'll live
that long, or you plan to retire earlier and don't care about reducing your
lifetime benefit, starting earlier would make more sense.
Another popular
strategy for couples with significant income disparities is for the higher
earner to delay benefits as long as possible to get the larger check. The lower
earner can begin benefits early if necessary to support the couple. Then, when
the higher earner signs up, the lower earner will automatically get a spousal
benefit -- up to 50% of the higher-earning spouse's benefit -- if it's more
than what they qualify for on their own.
That's news to me
...
If any of your
spouse's answers to the above questions surprised you, you probably need to
revisit your retirement plan. Or sit down and create one together if you
haven't already. Doing so will ensure that you're both working toward the same
goal and saving an appropriate amount for the retirement the two of you
envision.
Check in with your
partner at least once per year to see if anything's changed regarding the
questions above. Staying in communication is key to staying on track for your
goals.
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