Five Questions All Couples Need to Answer Before Retirement
When, where, what, who. These are questions that we ask ourselves all the time about big or small things happening in our lives. When is the movie? Where is the baby shower? What do we need at the grocery store? Who left the bathroom light on? So then, it should seem obvious that you and your spouse consider the very same thing when you are approaching retirement. Let’s start with when.
When will we retire?
According to a recent Motley Fool article, 43% of couples do not agree on when they will retire.[i] This poses a challenge since agreeing upon the right time to retire is critical to making your retirement income last as long as it can.
- Social Security: Filing for Social Security benefits before you reach your full retirement age will result in a reduction in benefits that could affect the rest of your life. If you retire early and need to rely on Social Security as part of your income, you may be risking losing out on quite a bit of income. By delaying Social Security payouts past your retirement age, you can see an 8% increase per year that you delay.
- Retirement Accounts: It is simple math. The longer that you contribute to your 401(k) and IRA the more potential it has to grow. Once you retire and need to begin drawing down on those investments the less potential earning power you have.
- Risk: You will likely want to invest in fewer equities once you stop accumulating. The investments with less risk also have a lower likelihood of producing high returns since they will likely be fixed-income investments like short- and long-term bonds.
For many couples, they face the dilemma that one person will retire before another and there can be a strain on a relationship when one is working, and another is not. Often, women who continue working when their husband retires report that they are continuing to do the lion’s share of the domestic duties of the household while working full-time despite the fact that their spouse has retired. It is important to talk with your spouse about day to day “operations” of retirement so that the division of labor is fair and that no one feels resentment.
While the emotional strain of having two very different lifestyles in a relationship can be a challenge, it can make financial sense for one person to retire and the other to remain working until they reach their full retirement age in order to maximize contributions, delay Social Security payouts and maintain investment opportunity exposure to equities for a few more years.
Where will we retire?
Age in place or downsize your space? It is a difficult and often emotional decision to make. According to Bankrate.com, 76% of Americans over the age of 50 prefer to stay in their homes after retirement. [ii] But there is a downside to this. Americans over the age of 60 are three times more likely to carry mortgage debt compared to those thirty years ago.[iii] Couple that with the rising cost of living and it is important for you and your spouse to really sit down and have a strong grasp on whether you can afford to stay in your home and for how long.
Financially it may work for you, but it is also important to consider the functionality of your home. Does it have a lot of stairs? Is it very large, requiring lots of cleaning and a high maintenance overhead? Is it in a central location or is it remote? How close is the hospital, the grocery store, your nearest friend or relative? Everyone’s situation is different and the answers to these questions may or may not have an impact on your final decision, but they are important to ask and to address together as you work through your choices and considerations.
Should you decide to sell your home it will be important to understand the financial implications of the sale. Working with a financial advisor to help you navigate the sale of your home and the purchase or rental of a new property can help you to understand all of the options and scenarios that could affect your bottom line.
What are we doing today?
It’s a hard question to answer. Especially if you haven’t gotten there yet. It can be difficult to picture what life might be like after retirement from the mundane perspective of just day by day. Sure, you have probably given thought to hobbies and travel and more time. But how will that time be filled in real-time? If you are coming from a career that is very time consuming and you consider you work-life a large part of your social life, you may encounter some culture shock when you embark on your new journey.
Loneliness and inactivity have been tied to poor health and early mortality and, while one doesn’t need to feel like they have to be busy all the time in order to stay healthy, planning ahead how your days will be filled can help you from getting stuck in a rut. Think about daily house chores, small projects that need to be tended to, hobbies you’d like to take up or do more often, people you’d like to see. You can also look at your calendar and organize some of your time around upcoming holidays and special events happening in your family or your community. The more this is discussed, even written down, with your spouse, the better prepared when you take the leap.
How much do we need?
The reason that this question wasn’t first is because the answer is largely dependent on your answers to the questions that came before it. There is no perfect formula that applies to all people. The better understanding you have about when and where you want to retire and what you will be doing, the more accurate you can be with your projected budget for you and your spouse.
Is our paperwork in order?
Having a plan for your retirement in your head is not very useful. It is critical that your plans and budget are written down in a document that you can review periodically. You should also ensure that your important documents like insurance policies, wills, power of attorneys and medical directives are up to date and in place.
Retirement is exciting and daunting all at the same time. Having a partner in life to go through it with is a wonderful thing. So is having a partner in planning. For a complimentary consultation to help you gain clarity and confidence for your future contact Charles Carroll Financial Partners today.
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About the Author
Carroll W. “Bill” Hayes, MBA, CFP® Mr. Hayes started his financial career at Merrill Lynch in 1989. In 1992, Bill left Merrill Lynch for Fidelity Investments. During his career at Fidelity Investments he held roles in various divisions of Fidelity. Those roles included positions in the Trust, 401(k), Brokerage, and Money Management divisions. Bill held management positions at Fidelity and in 2001 led a Private Access team based in Boston. In the Private Access role his responsibilities included managing a book of business in excess of $3 Billion and a client base that was international in scope.
In 2008 Bill established Charles Carroll Financial Partners. The firm is an Independent FeeOnly Financial Planning and Investment Management firm. Charles Carroll Financial Partners embraces its fiduciary responsibility to its clients.
Bill is a graduate of Marquette University, and holds an MBA from the Sawyer School of Management. Bill holds the designation, CERTIFIED FINANCIAL PLANNER, and currently presides as a Commissioner on the Disciplinary and Ethics Commission of the Certified Financial Planner Board of Standards. Bill resides in Massachusetts with his wife Christine and travels up and down the East Coast meeting with clients of the firm.