Although it’s technically viewed as “ceasing to work,” everyone has his or her own definition of retirement: to one person, it could mean hitting the golf course every day; to another, it could be spending more time on hobbies; and to someone else, it could mean traveling the world!
We have all thought about what our ideal retirement looks like — but have you and your spouse compared your own retirement goals and planned for your future, together?
Here are seven questions every married couple should consider as they near retirement:
1. How will we fund our living expenses in retirement?
Compared to previous generations, saving for retirement is vastly different — pension plans are becoming close to non-existent, and Social Security will probably not provide enough income for most retirees to live on each year. Do you have other sources of cash inflows, beyond Social Security and pension plan assets? If not, you and your spouse should review your savings and investment accounts with a financial advisor to determine if you have saved enough for retirement. For tax reasons, it is often prudent to spend after-tax investment assets first, before tapping into 401(k) and individual retirement account (IRA) assets. This generally allows retirement account assets to continue to grow tax-deferred (or tax-free, depending on the account).
2. What do we need to know about required minimum distributions (RMDs)?
An RMD is a minimum amount you may be required to start withdrawing from select retirement assets each year once you reach age 70 ½. The amount is different for every retiree, and is based on the value of your account and your life expectancy.
The IRS website provides helpful information regarding the differences in RMDs between various types of retirement accounts. Once you and your spouse have started taking RMDs, you may have excess cash inflows. If this is the case, you can keep the excess assets in cash or reinvest them in an after-tax account.
3. Do we need long-term care (LTC) insurance?
In the years leading up to retirement, you should regroup with your financial advisor to determine whether LTC insurance is right for you. LTC insurance usually makes sense for people who have a family history of health problems that require substantial long-term medical care, such as Alzheimer’s disease.
Based on your liquid assets, you may want to consider the risk of “self-insuring” in the event that you eventually need coverage. If you decide to acquire LTC coverage, keep in mind that the premiums can be pricey and tend to get significantly more expensive once you have passed your late 50s/early 60s. My colleague Noah Marell recently dove into this topic in more detail — click here to get his take and read more about LTC coverage.
4. When and how should we start taking Social Security?
Social Security is one of the hottest topics in financial planning right now, following the passage of the Bipartisan Budget Act of 2015 (read more about the legislation here). Now more than ever, it is important that you and your spouse review all of your options for taking Social Security and understand how your decisions might impact your long-term plan. The conversation isn’t as simple as taking your benefit before, at or after full retirement age (FRA) anymore; therefore, it’s crucial to seek out a financial advisor who has a good understanding of the Social Security system and can explain all of the benefit strategies that are available to you.
In addition to meeting with a financial advisor, you can also schedule an in-person meeting with a representative at your local Social Security Administration (SSA) office. You can also apply for your benefits on the SSA website and access helpful resources that can guide you through the process.
5. When should we apply for Medicare?
To avoid financial penalties, you should sign up for Medicare during the initial seven-month enrollment period that surrounds your sixty-fifth birthday (i.e., three months before your birth month, during your birth month and three months after your birth month). Higher premiums may be the result of late enrollment in both Part A and Part B of Medicare. Before you start the process, be sure to consult the Medicare website, as it provides a lot of helpful information about how to enroll in Part A and Part B.
6. Is our investment allocation too risky?
In the years leading up to retirement, you and your spouse should discuss whether an investment allocation change makes sense for your situation. Typically, as people get closer to retirement, they prefer to take less financial risk, so they reduce the percentage of stocks in their portfolio.
The answer to the question of whether to change your asset allocation depends on a number of different factors, including how long you and your spouse expect to live off of the assets, and your overall amount of savings at the time of retirement. In addition, you may want to do a quick “gut-check assessment”: for instance, if your portfolio dropped 10 to 20 percent, would you be able to sleep at night? If the answer is ‘yes’, a change may not be necessary; but if the answer is ‘no’, you should talk to your financial advisor about transitioning to a more conservative allocation.
Either way, a conversation around asset allocation and risk tolerance is important to have as you and your spouse near retirement.
7. What would happen if we died today?
Death is a difficult topic for a lot of people, but it is important to have a plan in place to ensure that your wishes are granted once you and your spouse have passed away. As you ease into retirement, sit down with your spouse and review your estate plan, as well as the beneficiary designations on your financial accounts. If you passed away, would your spouse be financially stable enough to support himself/herself, based on your estate plan? This is an important question to ask. In addition, your wishes and family situation may change as you age, so it’s crucial to review your estate plan on a regular basis to ensure that everything is up-to-date. Check out my colleague Nate Wenner’s blog for a list of estate planning tasks you can start tackling today.
If your retirement date is rapidly approaching, some of these questions may have already crossed your mind. The sooner you and your spouse meet with an advisor to develop a financial plan of action, the easier your transition into retirement will be. Once you’ve answered these questions and have made the appropriate preparations, it’s time to get out on the golf course and practice that perfect chip shot!