In some respects, retirement planning is easier for married couples, and in others, it is more difficult. There are two people saving instead of one, but there's also twice the unpredictability. You have to plan for two people's needs and desires, based on rough estimates of life expectancy, living expenses, and expected retirement benefits. Even a small miscalculation could leave you without enough money in the final years of both of your lives.
There's no way to eliminate this risk completely, but you can reduce it by planning a time with your spouse to discuss how you both envision your retirements. Here are some conversation starters for your next date night or your next sit-down with your spouse.
1. What do we want our retirement to look like?
It's important for you and your spouse to get on the same page about how you plan to spend your time in retirement. If you hope to travel the world or buy a boat, you're going to need to save more money than a couple who plans to spend their retirement at home watching TV.
Both parties' goals should be taken into account so that you can budget for them appropriately. Otherwise, you may find yourself unable to afford the retirement you've dreamed of together.
2. How much money do we need for retirement?
Your retirement savings has to last for the rest of your life. It's impossible to predict how many years you'll live, but you can estimate.
The average life expectancy in the United States is currently 78.6 years, but for many, this estimate is too low. One in four people who are 65 years old today can expect to live past 90, according to the Social Security Administration (SSA), and one in 10 may live past 95. Women should plan for a longer life expectancy than men because they live about five years longer on average. You'll need to factor in your own health history and that of your family.
Once you've estimated how long you think you'll live, subtract this age from your planned retirement age to figure out the approximate length of your retirement.
To determine how much money you'll need to fund your retirement, total up all of you and your spouse's expected living expenses in retirement while keeping in mind that certain expenses, like child care, will go away while others, like healthcare, could rise.
Once you've figured out your monthly estimated living expenses, multiply it by 12 to get your annual estimated living expenses. But you can't just multiply this number by the number of years you expect your retirement will last. You must factor in approximately 3% annually for inflation, which can be done quickly using a retirement calculator. Then, subtract any employer 401(k) match and your expected Social Security benefits from this total to determine how much of your own money you need to set aside for retirement.
After you've gotten your initial estimate, you can play around with different retirement ages to see the difference that retiring sooner or later would make to your retirement expenses. Talk with your spouse about when each of you wants to retire and create a monthly savings plan to help you reach, and track, your financial goals. Most retirement calculators will tell you approximately how much you need to save per month in order to hit your target savings, but you should keep up with your progress using a spreadsheet or notebook.
3. When should we start taking Social Security?
Single individuals claim Social Security benefits based on their own work record, but married couples may claim benefits on either their own work record or their spouse's work record.
When you sign up, the SSA automatically gives you the higher of your own Social Security benefit or half of your spouse's benefit, if he or she is already claiming Social Security. If your spouse is not yet taking benefits, the SSA will reassess your benefit when your spouse starts claiming and will switch you over to a spousal benefit if that offers you more money than your own Social Security benefit. This means you don't have to worry about whose work record to use, but you do need to think carefully about when each of you will start taking Social Security.
You become eligible for Social Security at age 62, but you won't receive your full benefit amount per check unless you wait until your full retirement age (FRA), which the SSA defines as 66 or 67, depending on the year you were born.
If you begin taking benefits before your FRA, the SSA reduces your benefit checks by 2/3 of 1% for every month that you receive benefits before reaching your FRA. Those who start Social Security as soon as they are eligible at 62 will only receive 75% of their scheduled benefit per check if their FRA is 66, or 70% if their FRA is 67.
You can also choose to delay benefits even longer after you've reached your FRA to continue growing your check amount by that same 2/3 of 1% per month, until you reach the maximum benefit at age 70. People with an FRA of 66 will receive 132% of their scheduled benefit per check if they start Social Security at 70 and those with an FRA of 67 will receive 124% per check. If you're unsure of what your Social Security benefit will be, create a my Social Security account for an accurate estimate of how much you're entitled to per month based on your current work record.
A common strategy employed by married couples trying to maximize their Social Security benefits is for one spouse to start taking benefits early while the other delays their benefits for as long as possible.
For instance, if you believe that half of your spouse's Social Security benefit will be larger than the benefit you'd receive based on your own work record, it may be wise for you to start claiming Social Security right away at 62. This way, the checks based on your record will provide income to live on while your spouse waits until they become eligible for those larger checks. When your spouse finally starts claiming, the SSA automatically switches your benefits over to that higher spousal benefit. This approach works well even if your own Social Security benefit is higher than your spousal benefit. The lower earner begins taking Social Security at 62 and the higher earner delays. This enables the higher earner to snag that bigger benefit, which will help cover more of the couple's expenses in retirement.
By thinking and talking through these considerations strategically, you and your spouse will be able to better plan for retirement and maximize the benefits that you're both entitled to. It's a good idea to check in with each other periodically to see if any of your goals have changed and to make sure that you're on track for your planned retirement dates.