While married couples sometimes try to coordinate when
they retire, not all spouses retire at the same time. Age differences,
different stages in their careers and even health can play a role in one spouse
continuing to work after the other retires.
However, when only one member of a married couple
retires, planning and preparation are still necessary. Couples often
underestimate the social, psychological and financial impact of having a spouse
retire. Patience and communication are often critical to navigate the
transition.
Your income might suddenly be cut in half after one
spouse retires. "When you have a married couple, and one spouse retires,
it takes a period of time, usually a year or two, for them to get used to the
lifestyle," says John Piershale, a wealth advisor at Piershale Financial
Group in Crystal Lake, Illinois. "It's a big deal when they don't have
that paycheck." Both spouses will need to adjust to the reduced cash flow.
The retired spouse will also have considerably more free time than
the working spouse, so the allocation of household chores and leisure pursuits are
likely to change. "It's important that couples discuss their retirement
goals and plans ahead of time so they're both on the same page," says
Christine Russell, senior manager of retirement and annuities at TD Ameritrade.
"If they're going to retire together, great, or if they don't, that's
great too, but they need to be on the same page."
Here's how married couples can prepare for one
spouse's retirement:
Make a new budget. You will need
to make a new budget based on your one remaining salary and any income from
retirement benefits. "Before they plunge into this very important part of
life, my suggestion is that they both sit down and assess what expenses and
income are going to be and what this [retiring] person will do," says Reid
Abedeen, managing partner at Safeguard Investment Advisory Group in Corona,
California. "They need to sit down and go through these numbers and tweak
the budget."
Your expenses might change depending on what the retired
spouse plans to do. "Talk about what you will do with your time. That will
help identify what your financial cash flow needs will be," says Wendy Ann
Payne, founding partner at Centurion Wealth Management in McLean, Virginia.
"If you need $8,000 a month after taxes to cover living expenses, medical
needs, debt service [and] gifting at holidays, will your assets and retirement
income cover all those needs?"
Have a game plan. Listing your
retirement goals can give you an idea of how you will spend your time and help
you avoid boredom. "Whether it's more gardening or the perfect golf game,
have a game plan," Abedeen says. The retired spouse and the working spouse
need to clearly communicate about shared and separate experiences in order to
avoid conflict. "If the person who is not working starts to travel without
the working spouse, it becomes problematic," Abedeen says. "It's a
partnership, and there has to be a game plan.”
Consider the impact on your
relationship. Roles and duties could change when one spouse retires. The
working spouse may come home after a hard day not expecting to cook and clean,
even if that was their role previously. "It can put pressure on the spouse
who's working if the spouse at home is not doing much," says Jared Snider,
a senior wealth advisor at Exencial Wealth Advisors in Oklahoma City, Oklahoma.
"This guy is annoying me because he has nothing to do."
Your personal routines will also need to be adjusted.
The retired spouse could become a night owl, staying up late to watch movies,
which could disrupt the working spouse, who has to get up early to go to work.
An employed spouse might want to relax in the evenings after working all day,
while the retired spouse slept in and is eager to go out and socialize.
"What happens when you have a spouse chomping at the bit who wants to go
running or to a baseball game? That spouse hasn't seen you all day and could
feel rejected," Payne says. "It's important to manage expectations,
communicate and continue to be a part of a community."
Have a plan for Social
Security. Married couples should coordinate when they sign up for Social
Security to maximize their
benefit as a couple. "When there are two people, you want to
maximize both spouse's Social Security benefits," Piershale says. "If
you file too early, you get a reduction. If you file late, you get a bigger
benefit."
Benefits payments are reduced if you enroll in Social
Security in your early 60s. For those who wait beyond 66 or 67, benefits
increase every year until age 70. "If both spouses are in good health,
because of longevity today, it's typically recommended that people wait until
their full retirement age, 66 or 67 depending upon the actual year born, to
claim Social Security benefits," Russell says. "With spouses, a lot
of these decisions are very interdependent, so a good practice is for couples
to create a model of what it would look like to have one spouse claim Social
Security versus delay Social Security and vice versa. Remember to model what
happens to Social Security when one spouse dies."
Don’t forget health
insurance. Employer health insurance is a major reason to keep working
until age 65. When one spouse continues to work, both spouses might be eligible
for employer health insurance.
Once you turn 65, take care to sign up for
Medicare on time. "If someone retires and doesn't file for
Social Security until they are over 65, they still want to enroll in Part
B," Piershale says. "There is a penalty if you don't enroll in time.
That's for the rest of your life. For every 12 months you don't enroll, it's a
10 percent hike.”
Reduce your portfolio risk. The working
spouse might be continuing to save for retirement, but it's also important
to protect the
money you have already accumulated."They need to assess
their risk," Abedeen says. Retirees often shift a portion of their
retirement savings to more conservative investments that are less likely to
lose money.
Consider a Roth conversion or
spousal IRA. If a couple falls into a lower tax bracket because of the loss
of one income, it might be worth it to convert some of your traditional 401(k)
or IRA savings to a Roth account, Piershale says. The tax on the conversion
will be charged at your new lower tax rate, and you won't have to pay taxes on
future growth in the Roth account.
Also, since one spouse is still working, he or she can
make an IRA contribution for the nonworking spouse in a spousal IRA.
You can defer paying income tax on up to $5,500 in a spousal IRA, or $6,500 for
people 50 or older. The rules: The couple must be married, file a joint return
and have earned income of at least the amount being contributed.
Be flexible. You may need to
make adjustments to your retirement plan over time. "For couples, it is
important to have a shared vision of what your retirement is going to be, but
to be flexible as well," Russell says. "You don't have to have a
final, formal plan on day one of your retirement from your job, but definitely
have a plan."
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