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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