The Retirement Talk Every Couple Should Have
Retirement comes as a welcome relief for well-prepared couples: a chance to travel, adopt new hobbies, and (finally) sleep in. It's easy to overlook logistical details amid the excitement of beginning a new phase, and timing is as logistical as it gets.
As most couples do, you've probably been referring to D-Day as an all-encompassing "when 'we' retire," but that doesn't necessarily mean your individual timelines are in sync. Ask yourselves these questions as you plan to exit the workforce.
What's age got to do with it?
When it comes to retirement, the answer is everything. A 2014 U.S. Census survey found that only 13% of couples are the same age. While you may have joint retirement savings, your individual ages determine when you'll qualify for Social Security benefits and how much you'll receive each month.
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You're allowed to claim Social Security benefits any time between ages 62 and 70, but the full retirement age is 66 for most people nowadays. Claiming benefits before then will reduce the size of your monthly Social Security check.
By claiming benefits at age 64, for instance, your monthly check would be only 87% of your primary insurance amount, or what you'd receive if you claimed benefits at your full retirement age. And the discount increases the earlier you claim, as you can see in the table below.
| Claiming Age | Percent of Primary Insurance Amount | Amount (Assumes a $1,500 Primary Insurance Amount) |
|---|---|---|
| 62 | 75% | $1,125 |
| 63 | 80% | $1,200 |
| 64 | 87% | $1,300 |
| 65 | 93% | $1,399 |
| 66 | 100% | $1,500 |
Source: Social Security Administration.
Couples should thus consider how filing for Social Security benefits early could affect their long-term plans.
Who has better healthcare coverage?
Even with Medicare, it's estimated that a 65-year-old couple that retired in 2016 will need $230,000 to cover medical costs, and an additional $130,000 for long-term care expenses. These figures represent a 6% increase from the previous year, according to Fidelity, which cites an uptick in doctor's visits and rising drug prices as two of the many factors.
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If you haven't saved enough, it's wise for at least one of you to remain in the workforce to take advantage of employer-sponsored healthcare. The money you'll save in the meantime can pad your retirement accounts.
Rather than spending $13,000 per year on medical bills, couples over 50 canmax out their traditional and Roth IRAs. Do that for five years, and you'll have an additional $65,000 in your nest egg (and that's before investment returns!).
Do we need more savings?
The average couple isn't financially ready for retirement -- not even close. A Government Accountability Office (GAO) analysis revealed that 29% of Americans over 55 had no savings at all, a terrifying revelation when findings suggest that the current price tag for retirement is $738,400.
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If you're new to investing,plug your funds into a savings calculator to learn how they measure up to the 4% rule. Thisholds that retirees can withdraw 4% of their retirement savings per year for 30 years without having to worry about running out. An easy way to apply this rule is to multiple your monthly expenses by 25. If you've saved more than that, then you should be in the clear.
Where will we live?
Three out of five retirees relocate after leaving the workforce, but that's not the whole story. A Bankrate surveyfound that only 20% of people ages 65 and older are open to the idea, even if the cost of living is lower elsewhere. That said, a move might be worth it. WalletHub's recent analysis of the best places to retire in 2017 weighed factors like the cost of living, taxes, and in-home health services. This may not surprise you, but Florida came out on top.
| Overall Rank | Best States for Retirees | Affordability Rank | Quality of Life Rank | Healthcare Rank |
|---|---|---|---|---|
| 1 | Florida | 1 | 11 | 24 |
| 2 | Wyoming | 4 | 25 | 19 |
| 3 | South Dakota | 15 | 33 | 2 |
| 4 | Iowa | 26 | 6 | 5 |
| 5 | Colorado | 27 | 17 | 7 |
Source: WalletHub.
Whether you are firmly rooted or crave life on a faraway beach, it's a good idea to weigh a variety of options. Consider how overall state rankings compare to the most important issues for you -- healthcare, for example -- to find the best location for your budget and quality of life.
What makes us happy?
It's easy to fantasize about the fun of retirement, but racing toward the finish line might lead you to discount the things you enjoy about working. A 2016 Employee Benefit Research Institute (EBRI) studyrevealed that only 48.6% of retirees are "very satisfied" with life beyond the workforce, down from 60.5% in 1998.
While depleted resources and declining health are definitely factors in the equation, subjective happiness is important to consider when combating the anxiety of leaving your job, tapping into savings, and just plain boredom. A separate EBRI study showed that 45.9% of households spent more immediately following retirement than just before.
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Retirement is sure to shake up your routine, and it might be tempting to fill the days with costly outings and new purchases. Before either of you says "goodbye" to the nine-to-five, talk about your plans and goals, both personal and financial, to make sure they align.
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