Retirement can be exciting, but it’s also a major life and financial transition. The stress brought about by the inevitable changes surrounding retirement may even cause significant rifts that strain a marital relationship. Married couples who don’t have a shared vision of their golden years may need to confront what could be difficult realities, including financial discord.
You may be in a position to help married clients who are contemplating retirement to avoid some strife and/or verify that they’re on the same page when it comes to retirement finances.
Start by asking these simple yet profound questions that they may not have posed to themselves or each other:
1. Will you retire at the same time?
Determining a workforce exit strategy that maximizes Social Security benefits and preserves retirement savings could mean having to stagger retirement dates. One spouse may assume that the couple will begin traveling or enjoying other retirement activities together within a similar timeframe while the other intends to keep working.
Attitudes toward staying in the workforce for a prolonged period may vary significantly yet go unspoken, and lacking a definitive answer could interfere with setting retirement savings goals.
2. How will you cover healthcare costs?
Paying for healthcare coverage can be tricky for those who want to retire before Medicare eligibility at age 65. If one spouse continues working while the other retires, family coverage through the working spouse’s employer may be an option. COBRA continuation coverage may also be available from a previous employer to help fill in the gap, but typically only up to 18 months (36 months in some cases).1 However, it can be expensive and eat away at savings, so understand any out-of-pocket COBRA costs ahead of time.
Asking clients about their plans to cover healthcare costs in retirement may reveal uncertainties about when they qualify for Medicare, how to sign up and when, which types of plans are available and the potential costs. It’s also a good idea to bring up long-term care insurance at this time. Misunderstandings and failing to plan for healthcare-related expenses could result in major financial burdens down the road.
3. Where do you intend to live?
Downsizing out of a home or moving to a different location geographically could have advantages and drawbacks. Depending on their home’s market value, selling could mean extra cash for the couple’s savings as well as freeing them from maintenance costs and labor.
However, relocating could also increase expenses as income taxes, property taxes and general cost of living vary widely from state to state. The question, “Should we stay or should we go?” may be best answered by putting pencil to paper and looking at the numbers objectively.
4. What does retirement look like to each of you?
Does each spouse have shared priorities? Aligning retirement goals doesn’t mean one spouse calls the shots. The couple needs to be clear on what they expect out of retirement, but be willing to compromise in order to align their respective retirement goals.
The couple’s financial situation may largely dictate what they can accomplish and how they can live in retirement, so you might suggest they establish a list of priorities to maintain a realistic outlook about their golden years.
5. Can you afford to live the retirement you envision?
Dreaming about retirement and actually funding it may be vastly different things. Determining the sources of monthly income available to the couple in retirement, their intentions about working in retirement, and their willingness to develop and stick to a budget all impact how comfortably they’ll live.
If this question suddenly has one spouse — or both — panicking about shortfalls, encourage them to start saving as much as possible, as soon as possible. Compounded investment returns may build on themselves and help close the gap.
6. Do you have a plan for covering unplanned expenses?
Post-retirement surprises may not be much different than those that spring up prior to retirement. Check in with the couple on the status of their emergency fund, and encourage them to keep the balance as close to six months’ worth of daily living expenses as possible.
7. How do you intend to handle changes to your income when one of you passes away?
It’s an uncomfortable topic, but the discussion about survivorship is necessary. How will the surviving spouse’s financial landscape change if Social Security, pension payments or other income streams cease?
Couples need to strategize how to replenish lost income before it’s needed in order to avoid rushed decisions during an emotionally charged time of life. This may also provide an opportunity to discuss life insurance and creating or reevaluating estate plans.
8. How will you handle any inheritance?
Spouses could have divergent views about where their inheritance goes and how their estate is handled. Assuming that any children take precedence over a certain charity or passion project could create dissension. Some clients may not want to leave their children an inheritance, but such decisions are not reached lightly or independently. Help them get it out on the table now to reach and document satisfactory solutions together.
9. Have you agreed to a mutual investing style?
During working years, each spouse likely managed their own 401(k) accounts through an employer or other retirement plans according to their own preferences and risk tolerances. Shifting into retirement may involve rolling their investments over into shared accounts or pooling cash. Your guidance may help build a portfolio that serves mutual goals and may be periodically adjusted to find investment strategies that accommodate drawdowns.
10. What’s your tolerance for stock market risk?
Leading up to retirement, financial professionals often check in their clients’ risk tolerances. But what about after retirement?
There’s no way to accurately predict what the market will do in or out of retirement. Since most couples will likely be counting on draws from an investment portfolio to fund retirement and supplement their Social Security income, assessing the level of acceptable risk and introducing tools like MEMBERS® Zone and Horizon risk control annuities may be among the most important things a financial professional can do.
The point of this type of guided conversation isn’t necessarily to produce immediate answers, but to get couples talking about the future and aligning their goals. From there, you can better understand how to serve your married clients because they hopefully will have cleared away assumptions and miscommunication about retirement finances in favor of compromise and clarity.
To further help all of your clients embrace the future and navigate through the emotions and uncertainties that come along with it, use the practical advice found in our Behavioral Finance Advice (BFA™) resources.
