Dear Readers: I often write about the financial conversations couples should have before they decide to spend their lives together. To me, getting to know each other financially is an important part of any relationship. But what about after you've been together for a number of years and you are close to retirement? You may think at this point that you've worked through any money issues. In fact, you may take certain financial things for granted. But retirement is a whole new phase of life. Are you ready to face this together?
Even if you've been saving diligently and you feel like you have a handle on savings, retirement can bring up fundamental lifestyle issues that can have a profound effect on your finances as well as your relationship. So I believe it's as important now to have a frank and soul-searching conversation with your partner about your goals and financial attitudes as it was when you started out together.
10 Questions Every Couple Should Ask Before Retiring
1) Should we retire at the same time?
This can be a tricky question because you have to look not only at your financial readiness to retire but also your emotional and physical readiness. Your relative ages, individual health and feelings about your work all come into play. For instance, for one of you, retirement may be an escape from the daily grind; for the other, it may be a loss of identity. There's no rule that says you have to retire together. The timing depends on what's best for each of you individually as well as the two of you as a couple.
2) Will we find a new place to live?
There's a lot to explore here. Downsizing or moving to a less costly location can make economic sense, but what about proximity to friends and family? Or having room when the grandkids visit? The idea of moving to a retirement community can also be a particularly emotional flashpoint. Put it all on the table, and acknowledge that there's more to consider here than dollars.
3) How will we spend our time?
What retirement looks like can be very different for each of you. One of you may envision a trip around the world, while the other can't wait to jump into a new business venture. To avoid conflicts down the road, make sure you're on the same path before you set out.
4) How much "togetherness" do we want?
Speaking of time, a common issue for retirees is the amount of time they want to spend together ... or alone. Talk this out, considering how each of you would choose to spend personal time, for instance volunteering, taking classes or playing sports. And speaking of personal space, that can apply to time at home as well. If you respect each other's desire for time alone, you'll enjoy your time together even more.
5) How will we handle household finances and personal money?
If you've been together for a while, chances are you already have a method for handling everyday expenses. I always favor a "yours, mine and ours" approach so that each partner has a certain amount of independence. Retirement shouldn't change that.
The real challenge for many retirees is to go from saving to spending what you've accumulated. So now's the time to revisit your budget and income sources to make sure you'll have enough to cover essentials. Once retired, you should strive to keep at least one to two years' living expenses in an easily accessible account.
6) Should we be out of debt completely?
Being debt-free before you retire can be a great goal. For many, though, it's not realistic, or even desirable. By all means, strive to pay off high-interest consumer debt like credit cards and car loans. And make a pact to charge only what you can afford so you can pay off each month going forward. But your mortgage is another consideration. Because interest on a mortgage may be a very low rate and tax-deductible, it could actually work in your favor. However, if you believe that being mortgage-free would give you greater peace of mind, paying it off before you retire may be the best choice for you.
7) When should we take Social Security?
While this is an individual decision, couples should carefully consider how it might affect their overall benefits — short-term, long-term and survivors. Generally speaking, the longer you wait (up to age 70) to collect benefits, the higher your payout. But there are couples strategies that can increase your benefits depending on your ages and incomes. For instance, the lower earner might take benefits early and the higher earner wait until age 70. The spousal benefit is also a factor for nonworking or lower-earning spouses. To get a basic idea of your alternatives, run some numbers on a Social Security calculator and talk to your financial advisor.
8) Should we revise our investment portfolio?
Generally speaking, it's smart to reduce investment risk in retirement. But that doesn't mean you have to do it all at once. Here's a possible timeline: Pre-retirement, you might strive for a moderate approach of 60% stocks, 35% fixed income and 5% cash. Early in retirement, you might shift those percentages to 40/50/10. Late into retirement, you could shift them again to 20/50/30. Because your retirement can last several decades, it's important to consider some exposure to stocks to help combat inflation. Of course, how you invest should match not only your personal wealth but also your feelings about risk, and you and your partner may have different styles of investing in your retirement accounts. That's fine. But if you're working as a team, be sure to discuss your differences and coordinate for long-term security.
9) What about health issues?
This is the great unknown and a potential financial drain. All you can do is be prepared. If you have a health savings account, continue to fund it for future use (once you file for Social Security, you are no longer eligible to contribute to an HSA). When you retire, make sure you have a good Medigap or Medicare Advantage policy. The Medicare website is a good source of information. Also think about long-term care insurance. And, finally, agree on basic estate planning, and be sure you both have advance health care directives.
10) Will we still be able to help the kids/grandkids financially?
While all of these questions are emotional as well as financial, this may be the hardest. We all want to help our kids — and it's great if we can — but when it comes to retirement, you have to put your needs first. Talk to your family about what they can or can't expect from you once you're retired. And don't feel guilty. Your family will ultimately be better off if they don't have to worry about your financial security.
Chances are you've spent a lot of time and energy saving for retirement. Now that you're almost there, talking about these important issues will hopefully give you and your partner more time, energy and resources to enjoy it!
Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "The Charles Schwab Guide to Finances After Fifty," available in bookstores nationwide. Read more at http://schwab.com/book. You can email Carrie at [email protected] This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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