Retirement is a monumental transition in a person’s life, and it shouldn’t be taken lightly.
Every aspect of life is affected by the decision to retire, including relationships, health and wellness, and of course finances. Couples in particular are learning how to share their hopes and fears about retirement with one another, and looking for ways to stay active in place of their careers.
“The key to a happy retirement is in the planning done during the years leading up to retirement,” said Howard Pressman, partner at EBW Financial Planning in Vienna, Va. “Not just financial planning but taking the time to envision their lives in retirement.” Instead of thinking of retirement as moving away from something, in this case the workplace, near-retirees should think about what they’re retiring toward, he said. “The better they can see what it is they are retiring to, the more successful they are at this transition.”
Going into retirement without a plan can have a detrimental effect on a retiree, throwing them into a depression or even an early death. Inadequate savings can send someone into a tailspin, but so too can feeling as though they’ve lost their sense of purpose or identity. Without preparation for retirement, and activities thereafter, retirees’ cognitive abilities could diminish, according to a study in the U.S. National Library of Medicine.
Sometimes, a “to do” list can help. Here are key points financial advisers suggest couples consider before and during the first few days of retirement. These tasks just scratch the surface.
Budgeting
• Before entering retirement, evaluate your finances. Look over a balance sheet, take account of all income and expenses for the next few decades and consider what unexpected challenges may await you. “We aren’t planning for 1-2 years in retirement, but 20-30,” said Ashley Folkes, senior vice president of investments at Moors & Cabot in Scottsdale, Ariz.
• When creating a budget, track expenses to see where every dollar goes. Couples should review their finances monthly, said Eric Walters, president and founder of SilverCrest Wealth Planning in Greenwood, Colo.
• Understand expenses may not go down as much as expected in retirement, either. “People usually estimate that their expenses will reduce because they are not commuting to work or perhaps not eating lunch out,” said Avani Ramnani, director of financial planning and wealth management at Francis Financial in New York. “They may just get replaced by other expenses, or even increase. They should settle into their new life and track the new set of expenses.”
• Both spouses should take part in managing finances. One may want to handle the checkbook, but they should both have a say in how the money is spent to avoid financial disagreements down the road. Older Americans are filing for divorce more so now than ever before.
Social Security
• Know your benefits. Create a My SSA account to see that work history is listed accurately and how much you should expect in a benefit check each month. The Social Security statement will also identify a person’s full retirement age, which will determine when they qualify to get 100% of their check, or when they may get a discounted amount for claiming early or a fatter check for claiming late.
• Look into claiming strategies and weigh when it makes sense to claim early versus on-time or later.
• Understand what spousal benefits are available for you or a spouse. There are “free spousal” benefits available for some couples, though they must be born before Jan. 1, 1954.
Withdrawing from assets
• Couples should assume they’ll have differences in how they’ll spend their retirement resources, and they should acknowledge those differences instead of ignoring them, said Rand Spero, president of Street Smart Financial in Lexington, Mass. They may very well need to adapt their retirement plan over time as they figure out what works and what doesn’t. “Advertisers show couples sharing blissful retirement years together so that people assume having common goals is the norm,” he said. “However, in real life, the first years of retirement are the most challenging because people move from focusing on their individual careers to considering how to spend their finite retirement resources of time and money together.”
• If you don’t have a financial adviser, read up on all strategies to draw down assets, including the 4% rule and the bucket strategy. Consider the tax consequences as well.
• Keep tabs of required minimum distributions, which must be made from numerous retirement accounts (including 401(k) plans) by age 70 ½. Forgetting to take RMDs will result in a penalty tax equal to 50% the amount that should have been withdrawn.
Health care
• Don’t forget about exercise, nutrition and attending to relationships. Walters gives his clients the book “Younger Next Year,” which is about improving lifestyles in retirement. “It also helps to lower their health care costs and infirmities,” Walters said.
• Have enough stashed away for medical bills and emergencies. This is an expense that will continue to rise as people age. A couple retiring in 2018 at 65 years old could expect to spend $280,000 on health care in retirement, and that doesn’t include long-term care costs.
Relationship
• Talk about goals, early and often. “The biggest challenge for any couple is being on the same page with goals,” said Thomas Rindahl, a financial adviser at Truwest Wealth Management Services in Scottsdale, Ariz. Rindahl said he has been working with a couple where one spouse wants to spend more of the funds than the other who wants to be more philanthropic. “They spent the first year or two coming to a happy balance,” he said.
• Follow the “3 C’s: Communicate, Cooperate and Compromise,” said Linda Jacob, a financial adviser and financial counselor at Consumer Credit of Des Moines in Des Moines, Iowa. To communicate, couples need to “say what you mean, mean what you say and don’t say it mean.” To cooperate, they need to work together to see their goals get accomplished. And they’ll also have to compromise, not always getting what they want. “Sometimes you have to take a back seat and let your spouse get what they want,” she said. “Then when it’s your turn, they help you.”
Lifestyle
• Create a new structure for the workweek, so as not to get bored.
• Talk to your spouse about your hopes, dreams and fears for retirement, as well as theirs. “Most retired couples do not look like those pictured in ads and commercials,” said Patti Black, partner at Bridgeworth in Birmingham, Ala. Spouses need to talk to each other about their expectations in retirement, like if they’ll be eating lunch together or separately often, work around the house and how much they’re willing and able to babysit the grandchildren.
• Don’t spend all of your time thinking about the day you’ll retire and what life will be like afterward. “That’s like the engaged couple who spends all their time thinking about the wedding and not on their marriage,” Black said.
• Draft or update important documents, including wills and advance directives, said David Almonte, a member of the American Institute of CPAs’ National CPA Financial Literacy Commission.
• Remember why retiring was important to you in the first place, and take the time to reconnect with your spouse and loved ones, Almonte said. “You save up your whole life for this thing called retirement,” he said.