Retirement can be an exciting time for a couple, but it can also be lonely if one partner decides to retire a few years ahead of the other. You and your loved one likely do a lot together, so quality time may get out of sync if you choose to stagger your retirement. On the other hand, retiring simultaneously may also pose some challenges. Are you ready to spend a lot more time together? How will your finances be affected by the sudden change in cash flow? Will you be at each other’s throats all day? These are questions to consider before you decide which decision is right for you.
The Cheat Sheet spoke with TIAA-CREF Financial Planning Manager Shelly-Ann Eweka. She gave us a few tips on how to make the best decision when it comes to coordinating your retirement with your partner.
The Cheat Sheet: What are some of the pros and cons of retiring at the same time as your spouse?
Shelly-Ann Eweka: You’ll want to be sure both you and your spouse are ready to retire, and you may want to discuss the possibility that one of you may want to continue working longer than the other. There are a few reasons you and your spouse may decide not to retire together. These may include:
- Both salaries will end at the same time. If you stagger retirement, more of your retirement assets stay invested.
- Staggering retirement will mean you’ll have continued employer benefits — especially medical — from one of your employers.
- Major travel expenses will be delayed until the second retirement, as the working spouse is still limited to vacation time.
If you or your spouse has been working most of your adult lives, you may also want to discuss the emotional impact of retirement. For some people, ending a career can result in a diminished sense of self-worth, and the end of a steady income can create stress and anxiety. Regardless of how much you’ve saved and how well you’ve planned, many people worry about running out of money in retirement.
CS: What are some tax implications when it comes to retiring at the same time, if any?
SE: To learn more about how your specific taxes may be affected, it’s best to speak to a tax professional. You’ll want to discuss what your sources of income are and how they are taxed. Does your state provide tax benefits for retirees? Many states offer tax benefits, such as not taxing income from retirement accounts or providing discounts to senior citizens on property taxes. However, every state is different in how they tax retirees. Also, remember that the required minimum distributions from your employer retirement plans do not have to begin if you are still working past age 70.5. They would begin after that employee left service.
CS: When a couple decides to retire together, what steps should they take beforehand to prepare?
SE: Before you can decide what kind of lifestyle you want in retirement, you first must ask yourself, “can I afford to retire?” An advisor can help you assess your financial standing, and help you set priorities for your retirement goals. You need to be aware of your financial situation both to help you determine the amount of income you will have to live off of in retirement and to help you agree on retirement goals.
Next, you should discuss how much you want to spend. Are you okay with using all of your savings in retirement, or do you want to leave money or assets behind for your family or a charitable cause? Finding a balance that you both agree on is vital to retirement planning.
Once you’ve established some broad financial parameters, you can begin setting priorities such as:
- What do you see yourself doing in retirement?
- Do you plan to travel?
- Would you rather move closer to your children and grandchildren?
- What social activities, such as volunteering or charity work, would you like to do?
- How much do you want to spend on leisure activities?
You and your spouse should make a list of individual goals, then pare down the list by finding agreed-upon activities, even if only one person will participate. Of the items where you differ, rank the importance of each for yourself. Which items would make retirement seem like a failure if you didn’t do them? Which ones could you live without? From that, develop a list of common goals for what you want to do in retirement. Do you plan to develop new hobbies in retirement? If so, you may want to prepare before you retire. If you plan to buy a sailboat, for example, have you learned to sail? You might want to invest in lessons while you’re still earning an income.
Retirement is a time of enjoyment, but it also has a more serious side. As couples age, you must think about your health. Have you saved enough to care for each other if one of you gets sick? And, of course, retirement and estate planning go hand in hand. Again, an advisor can help you tackle these areas.