Retirement is tough enough for one person, but for a couple, retirement takes even more planning.
It is important that couples be financially and psychologically prepared. A lot can go wrong. Here are some of the big mistakes couples make.
Not talking about retirement. “The first one is pretty basic, just a lack of communication,” says Paul Bennett, managing director of United Capital Financial Advisers in Great Falls, Va. “When one spouse keeps the other spouse in the dark regarding finance, that can be a big mistake if that spouse passes away. That still happens.”
And Bennett says many couples have not talked about what retirement looks like for each of them. “One spouse may value going on vacation every month and the other one doesn’t,” he says. One spouse may have visions of a vacation home in the mountains, and the other at the beach.
Terry Dunne, managing director at Millennium Trust, says the entire family needs to be involved in planning. “Make it collective,” he says. “Generally speaking, if it’s just the husband doing the planning and the spouse and kids are left out, there is potential for problems in the event of his death.”
Little or no planning. “That’s the biggest mistake I see,” says Germi Cloud of Cloud Financial in Huntsville, Ala. “People come in here over and over, and they have no plan. They are ready to retire and have no idea what their goals are.”
Jack Teboda, president of Teboda & Associates in Elgin, Ill., says a couple must have a target date for retirement. And they must have a budget.
“What is it they will be spending in retirement?” he says. “Are they working with an adviser to help them better understand? Do they have a pension or Social Security? Is there an IRA or 401(k) or 403(b) to supplement their income for the rest of their lives. Is there a shortfall in income? Will a market downturn affect their guaranteed income?”
Teboda says the biggest fear many couples have is outliving their income.
Failure to have an income plan is another big mistake, says Willie Schuette, investment adviser with JL Smith Group in Cleveland.
“That would mean they go into retirement and don’t understand how to use Social Security benefits, pension benefits and retirement savings to maximize the income they need during retirement,” he says. “They don’t know and don’t think, or they don’t seek professional help. Some people have a preconceived plan, but they don’t seek advice to maximize the plan they already have.”
Not updating legal documents and beneficiary designations. There are many stories about people dying unexpectedly (or not so unexpectedly) without having changed a beneficiary on an insurance policy after a divorce. Do you really want that insurance money going to your ex?
It is imperative that you check your beneficiary designations annually to make sure they are updated. Bennett says a couple should make sure to have a will, a power of attorney form and a living will.
Another problem, Bennett says, is that couples pick the wrong survivorship benefit for pensions. When picking a pension you usually have several choices. With one option the pension ends when you die. But a survivor option allows the partner to continue to receive benefits upon the death of the pensioner. However, that option means a reduced benefit (to account for two lifetimes instead of one).
So it might make sense for a couple to select the 100 percent survivorship option if the spouse’s earnings represent a large portion of the couple’s income. But if the pension provides only a small portion of the income, it might not make sense. And it is generally not wise for women to take a 100 percent survivorship pension because they often outlive their husbands.
Too much debt or not enough savings. “You may still owe $300,000 on your house,” Cloud says. “You have car payments and credit-card payments. You had this target date in mind [for retirement], and you didn’t start planning until five or six years ago.”
“I think close to 50 percent of people have less than $10,000 saved for retirement,” he says. “It all comes back to the not planning and procrastination.”
Dunne says a number of problems await people who retire too early without enough resources. “Once you get out of the workforce, it is difficult to get back in,” he says. “It may be age or health, or maybe the market is more interested in young people.”
“Retirement planning is incredibly important, and it has been underutilized for so many years,” Dunne says. “There are so many capable people, like financial planners, who can help you.”
A note of clarification: A column Dec. 6 on Social Security said you can suspend your benefits and take them later. The language was imprecise. It should have said you can withdraw your application and take the higher benefits later. Two requirements, though: You must do it in the first year, and you must repay any benefits you have received.