Yahoo Finance The Financial Talk Every Couple Needs to Have
So you diligently saved for retirement since you landed your first job after college. You took advantage of professional advice in selecting your investments, you regularly increased your savings rate until you were socking away 15 percent of your income and you made paying off your credit cards a priority, so as to limit the need to spend your precious retirement dollars on debt. You're just a few years from retirement and you're feeling pretty good about your circumstances, when your spouse looks at you across the dinner table and asks, "Are we ever going to talk about our retirement plans?"
What is there to talk about? You thought you had figured it out already, for both of you.
According to a 2014 survey of 1,008 adults, sponsored by Capital One ShareBuilder, couples say they discuss retirement planning an average of 14 times per year. However, this could be based on vague mentions of the word "retirement" or broad conversations about finances in general, such as paying bills. I'd venture to guess that not enough people are having the real retirement discussions they need to have with their spouse.
You can't avoid addressing some important questions with your spouse during the retirement-planning phase. Making sure you're on the same page is important to ensuring a successful and harmonious retirement, not to mention marriage. Here are some subjects you should tackle:
Meet the financial advisor. Following the loss of a spouse, 70 percent of widowers switch their financial advisor, according to 2011 data from The Spectrum Group. This is often due to a lack of personal relationship between said spouse and advisor. However, making important financial decisions during a highly stressful and emotional time can paint you as easy prey for financial salespeople, meaning you could end up with products and services you don't need.
It's important for both partners to meet with their current financial advisor to get a clear understanding of the goals and the strategy they're using to achieve those goals. Now is the time to create an inventory of joint assets and find out how those assets are invested and why, and which accounts should be used for emergencies and for retirement. This can help you avoid making the costly mistakes of picking faulty investments, paying too much in taxes or taking on too much risk.
Pro tip: The right investment advisor can help guide discussions with your spouse or significant other. This is especially helpful if you have differing views on risk (i.e. your husband or wife is more aggressive, but you fall on the more conservative side).
Timing is everything. Deciding when to retire is complicated and includes such factors as health, your job and financial needs. Couples also need to think about how their retirement date affects their Social Security benefits. When you apply for retirement benefits, your spouse may also be eligible for benefits based on your earnings -- up to 50 percent of the benefit you receive -- so it's important for couples to figure out how to maximize their Social Security income.
The issue can become more complicated if your spouse is entitled to benefits based on his or her own working record. If your spouse waits until full retirement age to file for benefits, he or she could opt to take their spousal benefit and allow the benefit based on his or her own earnings to grow through delayed retirement credits. Whether this is the best strategy, though, depends on which benefit would produce a higher retirement income.
Pro tip: The first step to choosing the right retirement date is to determine a savings goal based on your intended retirement lifestyle and the number of years you expect to live in retirement. Once you have a retirement savings goal in place, you can work backwards to see how long it may take you to accumulate that level of savings.
You may need to be flexible with your final retirement date, and when you'll start claiming Social Security, in order to best position yourselves for success when you finally do call it quits at your job.
Spending priorities. What does retirement "look like" to each of you? If one wants to travel while the other prefers to spend time at home, this could impact not only how much you need to save, but also your planned withdrawal rate. After all, you don't want to risk outliving your combined savings because one spouse wants to spoil the grandchildren or take that European vacation they've always dreamed of. Avoid any unnecessary surprises by discussing your retirement goals with your spouse or partner during your working years. Revisit the conversation regularly, since goals and dreams can change over time.
Pro tip: The traditional rule has been to withdraw no more than 4 percent of your retirement savings per year, but increasing life spans mean that may not work for you. Your withdrawal rate should provide for a comfortable retirement and also ensure you won't run out of money. To help yourself figure it out, create a retirement budget that includes needs (rent, food, utilities), wants (cable, cell phone) and wishes (the fun stuff you want to do in retirement, such as travel, hobbies and entertainment).
The bottom line: Having these conversations with your spouse ahead of time can help avoid a lot of confusion and conflict later. And if you're ever faced with an unexpected event, finances should be the last thing on your mind.
Investing in securities, including mutual funds and/or exchange-traded funds, involves risk including the risk of loss. Diversification does not ensure any investment strategy will be protected from market risk. Investors should consider the investment objectives, risks and expenses of a fund carefully before investing. Before investing in a mutual fund, request and review the fund's prospectus or consult with a professional fee-based financial advisor.
Michael Rittershaus is the president of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. Smart401k's advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.
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