Having a retirement planning partner can make your job a whole lot easier. You have someone to share the savings burden and help fill the void if you are unable to save as much as you would like in any given month. But there are also additional challenges to retirement planning as a team. Here are three steps that all married couples should take to make things go as smoothly as possible.
1. Know how each of you wants to spend your retirement
Understanding how you plan to spend your retirement is key to knowing how much you need to save, and unless you talk about it, you don’t know what your partner is thinking. Set aside time to talk about your retirement plans, including trips you’d like to take, major purchases you want to make, and where you plan to live. You also need to decide if either of you is considering work in retirement. If you don’t agree on anything, try to find a compromise.
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The next step is to determine your ideal retirement budget. Using the goals you’ve set and your current budget as a benchmark, figure out how much you need to save each year to cover all of your expenses. A retirement calculator will help with this.
And be sure to check in at least once a year or whenever your retirement goals change so you can adjust your budget and savings plan accordingly.
2. Know when each person will claim Social Security
Choose your Social Security starting ages can strategically help you squeeze more money out of the program. You can technically sign up for Social Security anytime after you turn 62, but you have to wait until your full retirement age (FRA) to claim all of the benefits to which you are entitled based on your work history. It’s somewhere between 66 and 67 for workers today.
Each month that you receive benefits before your FRA, your check will decrease. Those who start immediately at age 62 only get 70% of their full benefit if their FRA is 67 or 75% if their FRA is 66. Delaying slowly increases your checks over time until you reach your maximum benefit at age 70. This is 124% of your full benefit per check if your FRA is 67 or 132% if your FRA is 66.
Each person can apply for benefits on their own work record if they are eligible, but married couples may also be eligible for a spousal benefit. That’s up to 50% of your spouse’s benefit to their FRA. The Social Security Administration automatically grants you or your spouse’s higher benefit, but you cannot apply for a spousal benefit until your spouse registers.
The right claims strategy depends on each person’s income during their working years and their life expectancy. When both people have earned similar sums, it is usually best for both to delay benefits as long as possible, unless one or both expect to live a long time.
When one person has significantly passed the other, it is more important that the person who wins later. The low-income person may choose to enroll early to help the couple financially. Then, when the higher earner signs up for benefits, the Social Security Administration will automatically switch the lower earner to a spousal benefit if it’s worth more than they’re already receiving.
You can estimate your Social Security benefits at different ages by creating a my social security account. Use this information to decide when each person will sign up for benefits and keep this in mind when deciding how much each person will save each month.
3. Decide how much each person will save monthly
Once you have an idea of the total amount you should be saving each month, you need to decide on a fair way to distribute it. If both couples earn similar amounts, it might be easier to split them 50/50. Or if there is an income disparity, you can try a proportional approach.
For example, if one person earns twice as much as the other, the person earning more could contribute two-thirds of the total savings goal each month, and the person earning less could save one-third. If someone gets a raise or loses their job, you can reassess and adjust your savings goals as needed.
The key to all of this is communication. By making sure you’re on the same page as your partner, you’ll avoid financial surprises in retirement. If you are uncomfortable with something or unclear about any part of your pension plan, Talk to your partner. It will only take you a few minutes and can save you a lot of headaches down the road.
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