Retirement Planning for Couples
If you’re planning for retirement and have a spouse or partner, planning together can help maximize the likelihood of achieving your goals as a retired couple. Planning together before retirement helps align your lifestyle goals and financial objectives, increasing the chance you both are able to avoid difficult or unexpected situations when you least want them—during retirement.
The overall financial cost of your combined goals will affect how to plan for retirement. We believe the best thing you can do is discuss with your spouse or partner early and often. Understand what financial goals you share and where you differ so you can adjust your retirement plan accordingly.
To help you plan, we’ve put together some tips to consider as you prepare for retirement.
Talk About Retirement Together
While many retirement couples designate one partner to be in charge of managing finances and investments, this arrangement can leave the other partner poorly educated about the combined financial situation and investment strategy.
This setup may work for a time, but it introduces risk if the partner in charge of finances passes away or becomes unable or unwilling to perform this responsibility. To avoid this situation, include both partners in financial decisions and discussions so you’re both educated and capable of making decisions should something happen to one of you.
Additionally, some couples have lived together for decades and don’t know how their spouse envisions retirement. Partners often imagine different lifestyles or are misaligned on what they can—and can’t—afford once they’ve left the working world.
Having regular open discussions can help a couple gain clarity over time—clarity that is instrumental to a sound financial plan and conducive to their desired retirement lifestyle.
List and compare priorities and potential costs. Once you understand what you both value, you can identify which items resonate and which ones may require compromise.
See Our Investment Guides
The world of investing can seem like a giant maze. Fisher Investments has developed several informational and educational guides tackling a variety of investing topics.
Where to Live?
Deciding where to spend retirement is an important decision. If you plan to relocate or downsize when you retire, there’s a lot to consider, including:
- Cost of living
- Neighborhoods
- Shops and facilities
- Community resources
- Proximity to friends and family
Here are some questions to answer honestly with your partner. Some of them are simple, but the answers may change over time as life unfolds. Having regular conversations about your goals before your retire can help smooth out that transition.
How close to family and friends? If living close to family and friends is critical to enjoying retirement, then consider a location that not only keeps you close to loved ones, but also provides an environment that suits both your retirement needs.
Is climate important? A big part of a retirement location’s allure may be its climate or seasonal weather. Get to know your partner’s “dream environment” to find a place where you both can be content. If your budget allows, you might even settle on two locations.
Have you considered your total cost of living? Aside from your regular expenses, take into account your total cost of living, which might affect your savings or retirement plan. For example, living in a high-tax state versus a low-tax state may affect your expected income. An upscale urban apartment likely costs more than a place on the outskirts of town. Another critical consideration is the cost of healthcare. Since your healthcare needs likely grow as you age, locations with reasonable access to healthcare services may be an important consideration.
Do you want to rent or own? Have a discussion about the pros and cons of renting versus owning a home in retirement. The decision ultimately depends on your longer-term goals and financial situation. For instance, if you have sufficient liquid assets for income and cash flow, then you may prefer owning versus renting. If your plan is to realize equity in your house and downsize, renting may be a better option.
What type of home? This decision depends on how you plan to use your space. If you plan to spend a lot of time together and don’t foresee a lot of guests, then an apartment or condo might work. If you plan to host family events or entertain often, then you might need a larger space. If you plan on taking up an outdoor hobby, such as gardening, then a yard might be important!
When Should You Retire?
Most couples try to retire around the same time, but it’s not always possible. For example, if there is an age gap, the younger spouse may work longer. Doing so can improve their financial situation and allow them to add to employer-sponsored individual retirement accounts or other tax-advantaged accounts, such as 401(k) s, IRAs, Roth IRAs, etc.
Regardless of your situation, your financial needs should factor heavily into your retirement-date decision.
Projecting how much income you plan to generate from various sources is a good place to start. One method is to estimate how much money you need to support an income level that keeps your annual withdrawals below a certain percentage—such as 5%—of your portfolio’s value upon retirement. However, keep in mind the dollar amount may rise because of inflation.
In this method, you start by estimating the annual income on which you think you can live comfortably in retirement. Then, divide that amount by the percentage of your portfolio you plan to withdraw annually to calculate the desired size of your retirement savings. To help illustrate this example, here is a hypothetical scenario1:
- Desired annual income: $100,000
- Divide $100,000 by 0.05 (5%)
- The resulting figure, $2,000,000, is an estimate of the amount of savings a retirement couple needs to meet their desired annual income.
That means to withdraw roughly $100,000 annually (not accounting for inflation) while limiting your withdrawals to about 5% of your retirement savings, you may need a total retirement portfolio of about $2 million.
Keep in mind, this example excludes income sources beyond your retirement account. Speaking with a retirement planner when estimating your needs can help you incorporate more granular information depending on your circumstance.
Investing for a Comfortable Retirement
How you invest your savings can affect your lifestyle in retirement. For starters, the types of retirement accounts you choose can have a big impact. Contributions to a traditional IRA come from pretax money—meaning you usually haven’t paid income tax on it. However, withdrawals from this kind of tax-deferred account are usually taxed as ordinary income. By contrast, contributions to a Roth IRA are post-tax. You pay ordinary income tax upfront, but usually don’t owe taxes on withdrawals. Please note that Roth IRAs and a traditional IRAs have contribution limits and usually require you to be aged 59 ½ before you can take money out, with some exceptions.
The type of assets in which you invest can also have a large impact. We often see retirees underestimate the investment growth they need. A common assumption is the older you get, the more “conservative” you should be with your investments. Conservative, in this case, is typically understood as investing in securities with lower short-term volatility, such as bonds or cash.
However, this “conservative” approach may jeopardize your retirement plan by increasing the risk you run out of money. If you need long-term growth to maintain your lifestyle, you may need more exposure to higher-growth asset classes like stocks.
Have you heard of a spousal IRA
A spousal IRA allows one working person to contribute money to an IRA for their non-working partner. Using a spousal IRA can help bolster your savings by using tax-advantaged accounts.
Plan for a Longer Investment Time Horizon
Investors commonly underestimate their time horizon for a variety of reasons. However, it is better to plan for a longer investment time horizon—that’s how long you need your money to last—to avoid running out of money in retirement.
Many investors see retirement as the ultimate goal, but your retirement date is likely just the start of a long journey. Bills don’t stop on the day you retire. Unforeseen expenses can impact your retirement expenses. Inflation can continue to rise, sapping your purchasing power. New hobbies or travel could mean increased spending. In short, your investments may need to continue growing well after you retire so you can live comfortably.
Your investment time horizon might equal your life expectancy or your partner’s, or some time even further out if you wish to leave money to heirs or charity. However, you can’t perfectly predict your lifespan. Referring to a standard (or average) life expectancy table might be a place to start. But, the average life expectancy can’t accurately reflect your specific situation. So to be safe, it’s best to assume you’ll live longer than you expect—potentially much longer!
When Should We Begin Collecting Social Security Benefits?
In addition to other retirement income sources like a pension, IRA, or other savings and investment accounts, you may also be eligible to receive Social Security benefits. Deciding when to begin taking these benefits is another important consideration for a couple.
With Social Security, you can choose when to start receiving benefits. Generally, the longer you delay, the greater the benefits. But, as a couple in or near retirement, you may need to forego larger future Social Security benefits if you need cash flow at or before your full retirement age.
The Social Security Administration provides helpful tools, including benefit calculators, to help estimate potential benefit amounts. You might want to consult a financial adviser to optimize your Social Security strategy as you approach retirement.
Some additional benefits are available to couples, namely spousal benefits and survivor benefits.
Spousal benefits 2You may be able to collect benefits based either on your own earnings, or up to 50% of your spouse’s earnings. If one spouse was a much higher earner, it might make sense for the other to collect these benefits. To qualify, you must meet the minimum age requirements, and your spouse should have already filed for Social Security benefits.
Survivor benefits 3This option may allow for a spouse (or other dependents) to receive up to 100% of the deceased’s benefit amount. If you are the higher earner in the household, you should consider your spouse’s age and health before deciding when to begin receiving benefits.
Fisher Investments Can Help
Everyone’s circumstances are unique, and a personalized plan can help you better plan for your own retirement. Fisher Investments has helped thousands of investors plan for retirement and beyond. To learn more about your retirement plan options, contact us today and speak with one of our representatives.
1Note: This is a hypothetical example intended to illustrate a point and is not a personalized recommendation. Optimal retirement portfolio amounts and withdrawal rates will vary based on individual circumstances and market conditions.
2Social Security Administration as of 7/22/2022
3Social Security Administration as of 7/22/2022
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