As a single person, when you make financial decisions, it’s all about what works for you. When you’re in a long-term relationship, though, that changes.
Couples, even if they keep aspects of their finances separate, still need to pay attention to ways to manage retirement planning together.
If you want to have a successful retirement as a couple, start taking steps now.
One of the first things you need to do as a couple is to communicate about your retirement plans, goals and needs.
According to Fidelity’s 2018 Couples & Money Study, more than half of couples disagree about how much money to save for retirement and about 2 in 5 disagree about when their partner should retire.
These are issues that can derail retirement plans if not addressed — especially if you don’t get on the same page about how much to save in the first place.
The first step to making sure you have truly golden years is to talk with your partner and figure out how to approach things together.
2. Take advantage of spousal IRAs
Take advantage of the ability to contribute to a stay-at-home spouse’s IRA to increase your overall tax efficiency as a couple.
If either you or your spouse will stay home or work part-time, the major earner can contribute to an IRA (individual retirement account) in the name of the stay-at-home spouse.
One of the perks of IRAs is that a working spouse can make contributions to the other’s IRA — regardless of earnings.
As MoneyTalksNews writer Maryalene LaPonsie explains, “Married couples who file a joint tax return can contribute to an IRA for each spouse even if only one person works, assuming they are otherwise eligible to contribute to an IRA.”
If you can max out your spouse’s IRA on top of your own, that’s more money growing your nest egg.
3. Two-income households should save more
A recent study from the Center for Retirement Research at Boston College finds that two-income households aren’t saving any more for retirement than other savers. According to the research, in many dual-earning households, only one person has a 401(k).
The result, according to the research, is that dual-earning households with only one saver may be saving less of their household income than they should be.
Don’t assume that just because one of you is socking away money through work, that’s enough. If only one of you has access to an employer’s plan, review your household budget and consider making bigger contributions to the 401(k) to reach your goals.
4. Review your beneficiaries
As you plan for retirement and approach retirement, it’s important to review your beneficiary selections.
No matter what’s in your will, naming beneficiaries who will receive benefits from retirement and bank accounts and insurance policies is critical to ensuring that your wishes are carried out after your death.
It’s especially important to review beneficiaries if you or your partner has been in a previous relationship. You may not want your IRA savings to be passed to your ex after you die.
Checking your beneficiary designations makes certain that they match your preferences.
5. Consider retiring at different times
While it might seem natural for both of you to retire at the same time, it may make more sense, depending on your situation, to retire at different times.
If one of you is in peak earning years, being able to earn for a few more years can make a big difference in the size of Social Security benefits later. As a result, you could miss out on money by retiring earlier.
Another consideration is whether you’re both eligible for Medicare. If one of you is eligible for Medicare and the other is not, the younger spouse might be smart to hang on to a job for health care benefits until eligible for Medicare.
This can cause some challenges, with one spouse retired and the other working, but good communication and a plan can help you figure it out.
6. Make informed — and joint — decisions about when to claim Social Security
One of the thorniest decisions to make about retirement is when to claim Social Security.
This is true whether you’re part of a couple or not. However, the matter is more complicated for couples. If you’re married, your spouse’s timing in claiming Social Security can affect the amount of your survivor benefits.
Additionally, how much you get as a couple depends on whether and when you choose to take your own benefits or spousal benefits.
Before you proceed, take a step back and consult with a knowledgeable professional, or at least obtain an inexpensive personalized analysis of your claiming options from a specialized company. Knowing how to get the most benefit from Social Security can help you find the best approach for claiming benefits.
7. Pay attention to taxes
Couples need to think about how their joint earnings are handled by the IRS during their earning years as well as in retirement.
Depending on your situation, it’s possible that you might owe a “marriage penalty” on your tax bill. It’s not an actual penalty. But sometimes a married couple can end up owing more taxes together than if each were single — while some couples can owe less, a so-called “marriage bonus.” The nonprofit Tax Foundation, analyzing marriage penalties and bonuses for 2018, says bonuses could be as high as 21% of a couple’s income, and penalties ranged up to 12%.
You’ll also need to pay attention to RMDs, or required minimum distributions. These are the withdrawals that retirees must take from tax-deferred savings accounts after age 70½. RMDs have the potential to increase your income, affecting how much tax you owe.
Even if your 70th birthday is far away, planning now can save you money.
A good plan considers how you will handle withdrawals from all of your accounts, how those will coordinate with Social Security benefits and what the tax implications will be.
8. Understand the implications of a divorce
If you’re happily married, you probably don’t want to think about what happens to your retirement assets in the event of a divorce. While no one plans for a divorce, the reality is, it can happen.
Depending on a number of factors, you might be subject to a QDRO (Qualified Domestic Relations Order) giving your ex-partner rights to a portion of your retirement account. In that case, you might be required to turn over a portion of your retirement savings during a divorce.
The terms of a QDRO depend on state law and other factors, but it’s important to be aware of the possibility as you plan for your future.
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