Having a partner in retirement planning can make your job a lot easier. You have someone to split the savings burden and to help pick up the slack if you’re not able to save as much as you’d like in a given month. But there are also some added challenges to retirement planning as a team. Here are three steps all married couples need to take to help things go as smoothly as possible.
1. Know how each of you wants to spend retirement
Understanding how you plan to spend retirement is key to knowing how much you need to save, and unless you talk about it, you don’t know what your partner is thinking. Set aside some time to talk about the retirement you envision, including trips you’d like to take, big-ticket purchases you want to make, and where you plan to live. You should also decide whether either of you plans to work in retirement. If you disagree on anything, try to come to a compromise.
The next step is to determine the budget for your ideal retirement. Using the goals you outlined and your current budget as a baseline, figure out how much you need to save annually in order to cover all your expenses. A retirement calculator will help with this.
And make sure you check in with each other at least once per year or whenever your goals for retirement change so you can adjust your budget and savings plan accordingly.
2. Know when each person will claim Social Security
Choosing your Social Security starting ages can strategically help you squeeze more money out of the program. You can technically sign up for Social Security at any point after you turn 62, but you must wait until your full retirement age (FRA) to claim the full benefit you’re entitled to based on your work history. This is somewhere between 66 and 67 for today’s workers.
Every month in which you receive benefits before your FRA, your check will shrink. Those who start right away at 62 only get 70% of their full benefit if their FRA is 67 or 75% if their FRA is 66. Delaying slowly increases your checks over time until you reach your maximum benefit at 70. That’s 124% of your full benefit per check if your FRA is 67 or 132% if your FRA is 66.
Each person may claim benefits on their own work record if they qualify, but married couples may also be eligible for a spousal benefit. This is up to 50% of your spouse’s benefit at their FRA. The Social Security Administration automatically gives you the higher of your own or your spousal benefit, but you can’t claim a spousal benefit until your spouse signs up.
The right claiming strategy depends on each person’s income during their working years and their life expectancy. When both people earned similar amounts, it’s usually best for both to delay benefits as long as possible, unless one or both don’t expect to live long.
When one person has significantly outearned the other, it’s more important for the higher earner to delay. The lower earner might choose to sign up early to help the couple out financially. Then, when the higher earner signs up for benefits, the Social Security Administration will automatically switch the lower earner to a spousal benefit if it’s worth more than what they’re already getting.
You can estimate your Social Security benefits at various ages by creating a my Social Security account. Use this information to decide when each person will sign up for benefits, and keep this in mind when deciding how much each person will save each month.
3. Decide how much each person will save monthly
Once you have an idea of how much you should save in total each month, you have to decide on a fair way to break it down. If both couples earn similar amounts, it might be easiest to split it 50/50. Or if there’s an income disparity, you could try a proportional approach.
For example, if one person earns twice as much as the other, the higher earner could contribute two-thirds of the total savings goal each month, and the lower-earner could save one-third. If one person gets a raise or loses their job, you can reevaluate and adjust your savings goals as necessary.
The key through all of this is communication. Ensuring you’re on the same page as your partner will help you avoid financial surprises in retirement. If you’re not comfortable with something or you’re not clear on part of your retirement plan, talk to your partner. It’ll only take you a few minutes and can save you a lot of headaches down the road.
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