Too often, couples discover that their views on the subject are dramatically different. In fact, a recent Fidelity survey of 648 married couples, born between 1937 and 1964, showed that 62% of preretiree couples don’t agree on their respective retirement ages and 34% have different lifestyle expectations once they are no longer working—meaning they have competing views about what they expect to be able to afford in retirement.
“Long before retirement, you should sit down as a couple for some meaningful retirement planning discussions about your finances and lifestyle goals,” says Chris McDermott, a CFP® and senior vice president of retirement and financial planning at Fidelity Investments. “This will help you set expectations, work as a team to implement your plans, and enjoy this new stage of life together.”
What should couples talk about? Fidelity recommends setting aside time to honestly discuss the following 10-item checklist:
1. At what age do you want to retire? So many factors go into this decision. Some of them include when you can afford to retire, whether you’ll have adequate health insurance coverage if you retire before Medicare kicks in, and which spouse should retire first. “Women tend to reach the peak of their careers later than men, so they may not want to leave work just as they are hitting their stride,” says Laura Carstensen, professor of psychology and director of the Stanford Center on Longevity. She says women typically have longer life spans than men and may need the additional financial resources that come with working a bit longer.
2. Do either of you want to work in retirement? Nearly half (47%) of pre-retiree couples surveyed don’t agree on whether they should keep one foot in the working world.2 But your lifestyle expectations or current savings situation might require that one or both of you continue to work, at least part-time. In this case, talk about who has the better earning potential or greater job flexibility. Today, more people are gradually cutting back on work over time, rather than just stopping one day and retiring the next. This strategy may, in fact, be helpful for a couple's financial and emotional well being. Sometimes, however, plans to work in retirement can hit a snag if a person becomes ill and has to quit or is laid off. So it is important not to view employment income as a guaranteed source of retirement income.
3. What type of lifestyle do you envision in retirement? It’s best to agree on this beforehand so you can iron out the financial and social issues before retirement. Lifestyle will dictate your budget, which will help drive your saving and planning strategy. “Couples may have trouble agreeing on their lifestyle because it’s hard to appreciate what it will be like to live on the amount of income you’ve earmarked for retirement,” Carstensen says. So, she suggests doing a trial run by living on your expected post-retirement income one year before you stop working to see whether it’s feasible. If not, you still have time to either adjust your lifestyle expectations or your saving strategy.
4. Where do you want to live? Do you want to move somewhere less expensive or perhaps warmer? Or maybe you are considering purchasing a vacation home. These can be tricky decisions and quite often couples disagree here, because one may want to stay close to loved ones while the other wants to set off on an adventure. In this case, couples may want to compromise by taking some affordable trips, but coming back to a home base to spend time with family.5. What does your financial picture currently look like for retirement? How much have you saved and how much more will you need to live the retirement you envision? “Lots of people are legitimately concerned about getting through the next 10 years and they’re really afraid of running out of money if they live longer than expected,” Carstensen says. McDermott agrees and says the best defense in this situation is to strategize together: “Sit down and figure out how to curtail discretionary spending so you can direct more to your workplace savings plans and IRAs.” Three out of four preretiree couples (75%) surveyed plan to use a workplace savings plan as a retirement income source,3 so it’s important to make the most of this savings opportunity before you retire. Remember, if you’re age 50 or older, you can make annual catch-up contributions of up to $5,500 over the IRS contribution limit of $16,500 for workplace savings plans in 2011.
6. Have you created a retirement income plan? The lifestyle you hope to have will depend upon your income resources and how you’ll tap them during retirement. Only 57% of pre-retiree couples surveyed say they have worked on a detailed retirement income plan.4 To get the ball rolling, McDermott says, “Make sure you understand what goes into a sound retirement income plan, including a spending plan, asset allocation strategy, and prudent withdrawal strategy.”
7. Have you factored in future health care costs? Fidelity estimates that a couple retiring in 2011 at age 65 with no employer-provided health care coverage will need $230,000 in savings to fund out-of-pocket medical expenses in retirement.5 That’s a daunting number, and unexpected major health care expenses are a top concern for 59% of preretiree couples surveyed.1 So, plan together now for how you’ll fund healthcare in retirement, and don’t forget to factor in any potential long-term care costs. Determine whether you’ll have any retiree healthcare benefits or if you may need COBRA coverage between your retirement date and when Medicare kicks in (generally at age 65).
8. Do you know where all of your assets and important documents are? “This is an extremely important list you should make together, including providers and account information for all bank accounts, workplace savings plans, pensions, IRAs, mutual funds, brokerage accounts, life insurance policies, and annuities,” says McDermott. However, the Fidelity survey found that only 14% of couples surveyed felt completely confident that they could both assume financial responsibility for their retirement finances.1 One strategy to help make it easier to manage might be to consolidate your accounts. Doing so may allow you to monitor and manage those assets together.
9. Have you named beneficiaries? While spouses may automatically be each other’s beneficiaries on certain retirement savings accounts, you still need to designate contingent beneficiaries in the event of your death. You also need to name primary and secondary beneficiaries on numerous other assets, such as your home(s) and personal belongings. Go through the list of your assets that you made in the step above and be sure you agree on who will receive what after you pass away. Retirement is also a good time to revisit your estate plan and ensure that other critical documents, such as power of attorney, healthcare proxies, and living will, are up to date.
10. Do you understand how your Social Security and Medicare benefits will work? Quite often the timing and/or the way you receive your government-sponsored retirement benefits depends on what your spouse is doing (e.g., if they are still working, or when they will start collecting). And, since Social Security is one of the top three income sources for 31% of preretiree couples surveyed, make sure you plan together about how to collect your benefits.
There’s no doubt that money raises some of the toughest conflicts for couples—and retirement finances are no different. In many cases, you are probably better off putting your heads together and taking a united front.
https://news.fidelity.com/news/article.jhtml?guid=/FidelityNewsPage/pages/fidelity-10-retirement-questions-for-couples&topic=saving-for-retirement
No comments:
Post a Comment