Retirement planning with your spouse or partner

You’ve found the love of your life, and you’ve decided to grow old together. Now keep in mind that “happily ever after” can be a bit happier if you plan now as a couple, rather than two individuals who share a home.

Retirement income planning as a couple

While it’s true that many of your sources of retirement income will come from individual accounts and plans rather than joint accounts, planning together now can help you maximize the amount you can save for the future. Consider the following:

• 401(k) plans and individual retirement accounts. Each of these retirement savings programs is an individual account, subject to individual limits. That means that you can each contribute up to the maximum in a given year (this year’s IRS limits). If one of you is paid significantly more than the other, consider your total combined income when determining how much you can afford to contribute toward your retirement savings.
• Taxable vs. non-taxable income. Traditional IRAs and pre-tax 401(k) contributions are not taxed as income until you take distributions in retirement—but Roth IRAs, Roth 401(k) contributions, and after-tax contributions are. Some tax advisors recommend having retirement income from both taxable and non-taxable sources, because you may need to withdraw larger amounts in some years than others (for long-term care and other large expenses, for example). If you have only taxable money to draw from, withdrawing a higher-than-usual amount can bump you into a higher tax bracket and increase your tax obligation for that year. So, having a diverse mix of taxable and non-taxable retirement income gives you the flexibility to maintain a steady tax bracket and manage your taxable income in years in which you have unexpected expenses. Consider all your sources together as a couple. It might make sense to have a sufficient amount of both pre-tax and after-tax savings to draw from.

Health care coverage considerations

As a couple, during your working years you may receive health care from the same medical plan (yours or your spouse’s or partner’s plan, for example). The situation may change a bit during retirement. For example:

• Medicare. Once you’re eligible for Medicare, your expenses are typically covered at 80% by Medicare, with the remainder being paid out of pocket or covered through outside coverage, such as a Medigap or Medicare Advantage plan. If one of you becomes eligible for Medicare, you may need to coordinate coverage—determining which coverage is primary and which coverage is secondary. Plus, you may have an additional transition period if one of you is significantly older than the other and if one retires years before the other. In addition, Medicare Part D prescription coverage plans can be chosen individually each year, based on the drugs each of you takes. Visit the Medicare website to learn more.
• Long-term care. Costs for nursing homes and other types of assisted living are not covered by Medicare except when you’re recovering from a major hospitalization. You should consider planning ahead for this cost for both of you, which can be very high.

Consider age differences

A couple’s significant age difference may create special challenges when planning for the future. Be realistic about your future and consider the following:

• One’s retired; the other’s working. Think about your life in this situation. Maybe the working spouse becomes the primary wage-earner for the first time. The non-working spouse may want to take an extended vacation, requiring additional time off work for the other. Or he or she may prefer to start a second career—requiring additional cash flow. Have an honest conversation with your beloved about all the possibilities and how you’ll pay for them. A phased retirement—where you gradually cut back on working hours over time—may be something to consider for either person.
• Health care, income, and estate planning. While this applies to all couples, it’s a significant factor for those with significant age differences. Have a realistic plan about what to do if one of you should require long-term care or pass away long before the other.

Isn’t love grand? It can be, but acknowledging the realities of growing old together can help you prepare now and enjoy life later. If you haven’t done so yet, now is an excellent time to find a financial planner you both like and make an appointment—together.

Keep in mind, investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

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