Planning for retirement with a spouse makes things easier in some ways and more difficult in others. In many couples today, both partners are employed so they can work together to save for their retirement goals. They can also benefit from two Social Security checks in retirement instead of just one.
But you're also trying to plan for two people's visions for the future -- a future that could last 20 to 30 years. Good communication is essential when preparing your retirement plan.
Image source: Getty Images.
Though you may have a lot of ground to cover, including how much each of you is going to save per month and where you'll keep that money, the most important conversation you need to have is often overlooked.
How do you envision your retirement?
The foundation for any successful retirement plan for married couples is a shared understanding of what you want that retirement to look like. You may have talked about things you'd like to do in the future throughout your relationship, but your plans could have changed over time. Your retirement plan needs to keep up with these changes.
It's worth sitting down with your spouse and talking about how you envision your ideal retirement. Use the following questions as conversation starters:
- What are your top three retirement goals?
- When do you want to retire?
- Where do you want to live in retirement?
- How do you plan to spend your time in retirement?
- Do you plan to work at all in retirement?
- When do you plan to claim Social Security?
- What current health concerns do you have and how do you plan to address those in retirement?
- Do you want to leave a legacy to your heirs or to charity?
Talk about each question and any others you might think of. If there's one you have conflicting answers to -- say one person wants to move in retirement and the other wants to stay put -- take some time to come up with a solution as a couple.
How much do you need to save to achieve your goals?
Once you have a clearer idea of how the two of you want to spend your retirement, you can move to the next step, which is figuring out how much you need saved to cover your retirement costs. This is going to involve some estimation since there's no way to predict the future, but you can still get reasonably close.
Use your current expenses as a baseline and adjust each category of spending -- food, healthcare, housing, etc. -- up or down as needed. For example, if you want to move from your current home to a more expensive city, you'll have to budget more for housing costs. You can use current housing costs in that area as a guide, but you may want to check this every few years as costs rise faster in some cities than others.
Try to estimate how much you'll spend annually in retirement. Then, subtract money you expect to receive from Social Security, a pension, or a retirement job. The remainder is how much you must save on your own.
How do expectations compare to reality?
The final step is to look at how your estimated costs and timeline compare to your ability to save. If you hoped to spend $10,000 a month in retirement but you only have $5,000 in your combined retirement accounts by your mid-40s, that's probably not going to happen.
You can use a retirement calculator to help you determine if your plan is feasible. Enter how much you have already saved for retirement and the size of your monthly retirement contributions, if any. Note when you plan to retire and how long you expect to live as well. You'll also have to estimate the rate of inflation and how quickly your investments will grow. Use a 3% estimate for inflation. For your investments, try a 6% rate. Your investments may grow more quickly than this, but staying conservative reduces your risk of coming up short.
The calculator should show you how feasible your goal is and how much you need to save, both per month and overall, to achieve it. If this plan works for you, all you have to do is stick with it and check in with your partner at least annually or whenever you experience a major personal or financial change.
If it's not feasible, you may have to return to the first step above and figure out how you can revise your plan to come up with something that accommodates your goals and budget. Again, it's worth reviewing this plan at least annually so you can make any needed adjustments to keep yourself on track for your goals.
