Having a partner in retirement planning can make your job a lot easier. He has someone to split the burden of savings and to help him pick up the slack if he can’t save as much as he’d like in a given month. But there are also some additional challenges to team retirement planning. Here are three steps all married couples should take to help things run as smoothly as possible.
1. Know how each of you wants to spend your retirement
Understanding how you plan to spend in 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 some time to talk about the retirement you envision, including trips you’d like to take, major purchases you want to make, and where you plan to live. You should also decide if either of you plans work in retirement. If you don’t agree with something, try to reach a compromise.
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The next step is to determine the budget for your ideal retirement. Using the goals you outlined and your current budget as a reference, calculate how much you need to save annually to cover all your expenses. TO retirement calculator will help with this.
And be sure to check in with each other 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 get more money out of the program. Technically, he can enroll in Social Security any time after his 62nd birthday, but he must wait until his full retirement age (FRA) to claim the full benefit you are entitled to based on your work history. This is somewhere between 66 and 67 for today’s workers.
Each month that you receive benefits before your FRA, your check will be reduced. Those who start immediately at 62 only get 70% of their full benefit if their FRA is 67 or 75% if their FRA is 66. The delay slowly increases their checks over time until they reach their maximum benefit at 70 That’s 124% of your full benefit per check if your FRA is 67 or 132% if your FRA is 66.
Each person can claim benefits on their own work record if they qualify, but married couples may also be eligible for a spousal benefit. This is up to 50% of your spouse’s benefit in your FRA. The Social Security Administration automatically gives you the greater of your or your spouse’s benefit, but you can’t claim a spousal benefit until your spouse enrolls.
The appropriate claim strategy depends on each person’s earnings during their working years and their life expectancy. When both people earned similar amounts, it’s usually best for both of them to delay benefits as long as possible, unless one or both of them don’t expect to live very long.
When one person has earned significantly more than the other, it is more important that the person with the higher income delay. The person with the lowest income might choose to enroll early to help the couple financially. Then, when the person with the higher income signs up for benefits, the Social Security Administration will automatically switch the person with the lower income to a spousal benefit if it is worth more than what she is 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 take this into account when deciding how much each person will save each month.
3. Decide how much each person will save each month
Once you have an idea of how much you should save in total each month, you need to decide on a fair way to break it down. If both couples win similar amounts, it might be easier to split it 50/50. Or if there is an income disparity, you could try a proportionate approach.
For example, if one person earns twice as much as the other, the person with the highest income could contribute two-thirds of the total savings goal each month, and the person with the lowest income could save one-third. If a person gets a raise or loses his job, he can reevaluate and adjust his savings goals as needed.
The key to all this is communication. Making sure you’re on the same page with your partner will help you avoid financial surprises in retirement. If you do not feel comfortable with something or you are not clear about part of your retirement plantalk to your partner. It only takes a few minutes and can save you a lot of headaches in the future.
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