How To Coordinate Retirement Plans With Your Spouse

As you near your targeted retirement date, you’re likely anticipating all the upsides of not being tethered to a 9 to 5 anymore, such as taking mornings at your own pace, spending more time with your significant other and pursuing various hobbies to your heart’s content. And while those things are fun to consider, they’re merely perks of retirement — not what fuels it.

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Before you can start enjoying the next chapter of your life, it’s important to sit down with a financial advisor and hash out the details. Straight from the experts, here are some key factors to consider when coordinating retirement plans with your spouse, including how to protect your nest egg from inflation.

Consider the Duration of Your Retirement

“Couples have a lot of decisions to make around their retirement planning,” said Chris Kampitsis, certified financial planner from The SKG Team at Barnum Financial Group. “The first thing we want to determine are the assumptions that we are going to use. For example, life expectancy. Science is keeping people alive longer than ever before. Recent studies tell us that for a couple aged 65 there is approximately a 50% chance at least one of the two lives past 90. We encourage our clients to use an age 95 assumption unless their personal health history clearly indicates we should use another age. The last thing anyone wants to do is outlive their money.”

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Consider Your Portfolio’s Rate of Return and Inflation

“Once we understand the potential duration of our retirement it is important we then make an assumption for our portfolio rate of return as well as for inflation,” Kampitsis said. “It is important we not be too biased towards the recent returns of the market. Over the 20 years from 2000-2019, the S&P averaged just over 7.5% percent and featured historically epic bear and bull markets. If our portfolio mixes in bonds, cash and other investments – a return assumption between 4%-6% might be reasonable.

“Inflation is in the news lately. It is a huge threat to our retirement as decreased spending power leads to increased withdrawals. This can be the biggest mistake couples make. They forget to account for inflation. Most planners would suggest a 3-4% inflation rate. Anything less might undermine our best planning efforts should the current inflation rates prove to be more than transitory.”

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Consider Spending Needs in Retirement

“Retiring without having completed a realistic budget that factors in both needs and wants, basic expenses and lifestyle is a no-no,” Kampitsis said. “We are not responsibly retiring if we don’t have a reasonable expectation for our monthly and annual needs net of taxes.”

Robert J. Allan, CPA and managing director of Welon Partners, suggested asking yourself the following questions to help you determine your spending needs:

  • How much do you need per year?

  • Are there major one-off purchases you are considering?

  • Will your spending needs change (i.e., based on relocating to a less expensive area)?

  • Are there any major inflection points — we need $80,000 per year until we reach 75, then we expect our healthcare costs to increase and we need $90,000 per year.

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Consider the Timing of Your Retirement

The timing of your retirement can affect what options you have as far as benefits and income sources. “Depending on if the household is a single-income family or a multi-income family, there will be different planning considerations in each,” said Jamieson Hopp, CFP at Millennial Wealth, LLC. Here’s what you need to consider.

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Retirement Timing in Single-Income Families

“In a single-income household, health insurance is generally a higher priority, as it is likely that the spouse generating the income is on their group health plan,” Hopp said. “If both spouses or one spouse are under age 65, then they have to start considering where they are going to be covered in the gap between retirement and age 65.”

Hopp also said that a single-income family will experience a greater decrease in income if the working spouse retires. “This opens the opportunity for the advisor to plan for what sources of retirement savings will be pulled from first. For example, if the working spouse retires before 59.5, then there will be a penalty on withdrawing pre-tax retirement funds from retirement accounts (e.g. 40(k), IRA).”

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Retirement Timing in Multi-Earner Households

“On the other hand, multi-income households generally have more flexibility when making a decision to retire,” Hopp said.

“However, there are plenty of instances when the couple’s goals do not align when making a decision on when to retire,” he said. “Often, a decision on who to retire first can often be made based on age and how that relates to health care costs and penalties on retirement accounts. Careful consideration should be made on where and when retirement funds should be withdrawn, and who should carry health insurance/continue to work especially if retirement for one or both spouses is before age 65. Of course, making sure these decisions align with clients’ goals is a must.”

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Consider Pension Plans and Survivor Benefits Options

Calvin Goetz, founder and president of Strategy Financial Group, said that spouses nearing retirement who are eligible for an employer-sponsored pension plan should investigate the possibility for survivor benefits.

“Too often a spouse draws a single life pension simply because it was the highest payment,” he said. “They don’t realize that for a small reduction in monthly payment they may be able to make a 100% joint- and survivor pension payment that would continue until the death of the second spouse. If a single life pension payment is selected then they should consider permanent life insurance to fill the gap if that income stream were to stop because of one spouse’s death.”

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Good Advice: Clearly Define Your Retirement Goals

“If you and your spouse/partner are considering retirement, please sit down with each other and clearly define your goals,” Hopp said. “Ask yourselves questions such as:

  • When do we want to retire?

  • What do we want to do in retirement?

  • How much money do we want to spend and/or leave behind?

  • What resources do we have to accomplish these goals?

  • Do our individual goals align with what we want to accomplish together?

Having these prepared answers will help an advisor understand the feasibility of your retirement plan and help them build a plan to align with your goals.”

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Last updated: Oct. 27, 2021

This article originally appeared on How To Coordinate Retirement Plans With Your Spouse