When couples marry, their financial priorities are running their household, providing for their children, buying a home, saving for college, and maybe taking the family away on vacations. In the thick of life, very few people think about how they will live and manage their finances when they are no longer working, but this can be a costly mistake.
While money does not equal happiness when it comes to retirement, the more money you have, the more opportunities and flexibility you will have. If you and your other half are nearing retirement, it is important to make plans as early as possible to ensure you can both enjoy a long and comfortable retirement. This guide outlines some key considerations to keep in mind while planning your retirement.
Think about your long-term future
What does your ideal retirement look like? You might have a quite different vision from your partner’s, so it makes sense to compare ideas and ambitions. One person may want to stay local and maintain connections with former colleagues, friends, and family, while the other dreams of a fresh start. Some people like the idea of traveling the world or having two or more homes in different locations, while others who have led hectic lives are looking forward to laying down roots. The sooner you start to talk about what you want, the sooner you will discover your differences and can begin to work towards a compromise.
Be realistic about the future
Whether it is you or your partner, one person will live longer than the other, and sometimes by a significant amount of time. For example, if there is a significant age difference between you or one of you is in better health than the other, you should be realistic about how your retirement is likely to look. For example, you may want to consider how one partner will be supported financially without the other, as this might affect your decisions about pensions, savings, and investments.
Health should also be taken into consideration when considering your living situation, as one or both of you is likely to require medical care and practical support as time goes by. You might want to consider moving closer to family, or a popular choice for many retirees is to move into a senior living community like Belmont Village. Retired individuals and couples can continue to live independently while having the opportunity to socialize with likeminded neighbors, take part in community activities and events, and access programs to benefit their physical and mental health. If your or your partner’s health needs change over time, you will have access to 24/7 medical advice and care.
Combine your money
Some couples share their money from day one, while others decide to keep some or all their money separate. There is no right or wrong answer, but as you get closer to retirement, it usually makes more sense to combine your money and manage your finances together. You should talk about the pension that each of you will receive, as well as any savings or investments you have, to work out what you will have to live on during your retirement. These situations are rarely balanced, and it is likely that one person will be wealthier than the other, but in the long run, you will both be better off if you align your financial interests. If you both keep your own money separate and manage your own personal savings, it is likely that one person will end up much better off than the other, which is not conducive to a happy and successful retirement.
Consider staggering your retirements
Retirement can be an exciting and rewarding time of life, but it also brings challenges. There is likely to be a period of adjustment as you get used to a new routine, try to meet new people, revisit old hobbies, and try new experiences. This can be a stressful time for many people, and it can be made more difficult if both of you are starting new lives at the same time. An alternative strategy is for one person to retire before the other so that you still have an income you can rely on, and some elements of the previous lifestyle are still in place during the transition.
Update your beneficiaries
If you have a 401(k), you will have named specific people as beneficiaries who will receive money in the event of your deaths. This information should be updated regularly after a significant family event like a birth, marriage, death, or divorce, but it is common for people to neglect to do this. You can check that your beneficiaries are listed accurately by contacting the brokerage firm (if it is an IRA) or your employer’s personnel department.
Be cautious about taking a lump sum
If you have a pension plan, it might be tempting to take some of it as a lump sum. However, often the better financial decision is to take the money in installments, i.e., as an annuity. This is because you would usually get a better rate of return when taking the money over a longer time period. Of course, if you have a particular plan which requires a lump sum, you might want to take a lump sum, or you may feel more comfortable taking it all at once, so you have a safety net of money in your account. Whatever your inclination, be sure to weigh up your options. Click here for more on the differences between a lump sum and an annuity.
Ensure you both understand your financial situation
Often in a marriage, one spouse has a better grasp on the couple’s finances than the other, and in some marriages, the big decisions will fall to one person. This might be because they have more experience in financial matters, but it is wise to redress this balance when you retire. If the partner who manages the money becomes unwell or passes away, the living spouse may find themselves in a difficult situation regarding any investments, savings, or benefits due to them. Some people are also not as worldly as others in terms of spotting a financial scam or assessing investment risk. Make sure you discuss these matters while you still can and take whatever steps needed to ensure both spouses could manage their finances without the other.