- By Neal Frankle
If you’re married or have a partner: Want to boost your chances of having a secure retirement? Interested in reducing some of the tension at home? Keen on avoiding an irreparable split? Then you should take a look at how you make financial decisions about retirement together.
Study after study point to arguments about money as being one of the top reasons couples fall apart. And don’t be complacent just because you’ve been together for decades. Sadly, more and more people over 50 with long marriages are calling it quits these days.
Even if the situation doesn’t become that dire, it’s important to work together effectively to finance your retirement. By doing so, you’ll maximize opportunities, save money and prevent unnecessary unhappiness.
But how exactly do you accomplish this? I’m not a marriage counselor, but as a financial planner who has worked with hundreds of couples over 30 years, I’ve noticed a few distinct patterns for success:
If you two determine there is a great divide between your retirement dreams and what you think you can afford, don’t despair.
Clarify, Prioritize & Dollarize Your Goals
Before considering constraints, discuss your retirement dreams and write them down. Answer questions like these:
Where would you both like to you live when you retire? How much would you like to travel? Would you prefer to own a home or rent (and how much will that cost)? Is helping the kids financially a priority and, if so, how much support do you have in mind? Is it important that you’re both debt-free when you retire and, if so, what will it cost to achieve that?
Don’t go to the next step until you agree on what you both want the broad picture to look like and how much it’ll cost. If you or your partner has goals that the other doesn’t, that’s OK. Write them down, too.
Chances are, you’ll have to compromise; I’ll deal with that shortly. But for now, the critical point is: clarify what you both want your retirement lives to look like, what your priorities are and your best estimate of what each item costs.
Mark each item as either a “must have,” “want” or “wish.” That will be invaluable when it comes time to putting your plan into action.
Project What the Future May Look Like
Now that you both know what you are aiming at, it’s time to objectively determine if you are on track to achieve your goals. You do that by taking stock of your investments, anticipated retirement income and potential future costs.
Project how much money you’ll need to pay for the lifestyle you both dream of. It doesn’t have to be an exact figure; a ballpark number is good enough to start with. Then, compare that amount to what you can reasonably expect to receive from pensions, Social Security and investment income.
Take the time to get buy-in from your partner on this. Make sure you both understand how the math works and that you agree with the numbers. This way, you will address any challenges as a team rather than as adversaries.
One note about Social Security: There will be some big changes to the rules for claiming benefits starting later this year and they will impact the way couples plan their retirement income. One change in particular that’s worth noting: The File and Suspend strategy is ending on April 30; it was especially attractive to married couples where one had a significantly higher salary than the other, increasing the size of their combined benefits. But if you’ll turn 62 after Jan. 1, 2016, this option will no longer be available.
Talk to your financial adviser to hammer out the best Social Security claiming strategy for your situation.
Amend Your Strategy Together
If you and your spouse or partner determine that there is a great divide between your retirement dreams and what you think you can afford, don’t despair. There is plenty you can do to build your bridge.
First, go back to your priority list. How many of the “need” items can you afford? If you have enough resources to pay for all of these, your work may be done. At this point, it’s just a question of how much money you’ll have left over to pay for the “wants” and “wishes” as well as your ability to compromise with your partner.
But if you won’t have enough to cover all the things you agree you “need,” it’s time to compromise together.
Would you both agree to retire in a different, less expensive area? If so, you could save a bundle. For example, according to Bankrate.com, if you retire to Amarillo, Texas from Los Angeles, you might be able to maintain the same standard of living with 41 percent less income. That’s impressive.
If you aren’t both willing to move, could you agree to sell your house and rent instead? That can free up a great deal of capital and reduce your costs.
If neither of these options work, would you be willing to cut spending, invest differently or do both? This shift could be meaningful.
Remove Remaining Obstacles
If you and your partner are still stuck, it may be time to call in professional help. This could be a financial adviser or a therapist.
Often, the problem is the ability to listen to each other and communicate effectively. Sometimes a third party is all you need to resolve this impasse and find agreement.
Issues such as one partner’s debt or spending problems may be easier to overlook while at least one of you is working. But when it comes time to plan for retirement, they take on more urgency to address.
The bottom line for your retirement: Recognize where you are now as a couple, where you want to be, what it will take to achieve your goals and the need to make a joint commitment to put your plan into gear. Then do it.