When Fidelity Investments asked couples how much they think they will need to save for retirement to maintain their current lifestyle, 48% had “no idea.” Forty-seven percent disagreed on the amount needed (the disagreement highest among those closest to retirement). In some ways, that’s not surprising – many couples disagree on financial and lifestyle matters long before they’ve stopped working. But while adjustments (hopefully) can be made and differences resolved, things can become more difficult in retirement. The picture changes: At that point you’ve generally stopped accumulating wealth and now have to focus more on controlling expenses and dealing with the various risks that come with retirement. Simply put, your options narrow. In addition, there’s always the unexpected – from health challenges to investment losses to inflation to sudden expenses … that list goes on too.
Although it may not sound like fun, the reality is that the time to talk about and resolve any differences you have about retirement is not once you’re already there but long before. With that in mind, let’s look at some of the key areas where couples need to find common ground.
Spouses often have different time frames for their individual retirements, an issue that can be exacerbated if one is significantly older. Sometimes this is a matter of policies or expectations in their respective workplaces; sometimes it’s a matter of how much longer each one feels they can physically continue to work. One spouse may be eyeing the door; the other may enjoy their work and want to keep the fulfillment it brings. Of course, the retirement nest egg is also a factor here. If you’re planning to downsize or move to a location that’s warmer, or nearer your children, that will affect your timeline as well. There’s no numerical answer – 65 as a retirement age just isn’t relevant in today’s world – and this may be a moving target anyway. But you both need to have a general idea on when each is going to retire. You also need to be in agreement on where you’re going to live, because making a mistake on this point can be very expensive to fix. If one spouse is set on a certain location, try to take a long vacation (or several) there together and discuss how you each feel about living there permanently.
Some people see retirement as a time to do very little, others see it as the time to do all of the things they couldn’t do while they were working. While these are individual choices, they will affect the other spouse and – most important – your joint financial planning. After all, if there’s a trip to Europe in your future, there’s a hefty expense in your future as well. While you may not be able to – or want to – pin everything down precisely, spouses should be in general agreement on how they’re going to live in retirement and what that lifestyle is going to cost. In addition, you need to arrive at that expense estimate long before retirement, while you still have time to make any changes that might be needed to assure you reach the financial target required to fund your agreed-upon lifestyle.
How much you spend and save now obviously plays a major role in determining how much you will be able to accumulate and therefore how much you can spend in retirement. A key question: What tradeoffs (working longer, saving more, delaying Social Security) are you willing to make now to increase your odds of having the retirement lifestyle you want? Examining your current lifestyle is also a good starting point for discussing how things might change in retirement. Are there expenses that will go away? Are there new ones that will pop up? If you’re planning on working part-time or perhaps turning a hobby into a little business, should you begin planning for that now?
This is a major topic, including items such as monitoring and managing expenses; how much you can withdraw from your retirement portfolio annually; what your income sources will be; how long your money has to last (be sure to add a margin of safety on this one); what level of risk you can jointly tolerate (wives usually are more risk-averse); how much you plan to leave to others or to charity; how much you’re going to set aside for emergencies; who is going to manage the money; what happens if that spouse dies first … another list that goes on. You don’t want to spend your retirement years worrying about money, but not planning ahead is a really good way to ensure that you will. Talk about these subjects now.
By the time you reach retirement you will be well aware that life hands you plenty of things we didn’t plan for. “Expect the unexpected” applies all the way along the journey, but perhaps even more strongly in our later years. What will your healthcare costs be, and how much of that will have to come out of your own pocket? Will you or your spouse need long-term care, and should you purchase insurance to cover that? What happens if the market suffers a severe downdraft right after you retire? While you obviously can’t plan precisely for an unknown, talking about what might happen and how you should respond will make things easier when and if the unexpected does occur. In this last category is the reality that one spouse is likely to outlive the other, so your estate planning should be done together and the day-to-day manager ofyour finances should be certain the other spouse can take over on the morning he or she has to.
Communication is vital in every relationship, and especially when it comes to something as important as retirement. An enjoyable retirement is a destination you can’t reach without working and planning together, which means coming to a general understanding of what it looks like to each of you and what’s required to get there. Almost all of us will have to make some tradeoffs and adjustments – as we have throughout married life – and it’s important to remember that the earlier you discuss and negotiate what those are going to be, the better your changes of achieving the satisfying retirement you’ve both worked so hard to achieve.
Raymond James is not affiliated with any companies mentioned in this material.
Material prepared by Raymond James for use by its advisors.