‘We live frugally’: I’m 54 and my husband is 64. We have a $4 million net worth, but I’m not working. How should we navigate our retirement?
‘We live frugally’: I’m 54 and my husband is 64. We have a $4 million net worth, but I’m not working. How should we navigate our retirement?
Dear MarketWatch,
What do you do when your ages, earnings, retirement savings, and future benefits are unevenly split? I’m 54 and my husband is 10 years older. Our combined net worth is a little over $4 million: $1.6 in real estate, $700,000 in education savings, $250,000 in cash and investments, and $1.7 million in retirement accounts, mostly traditional IRAs. We live frugally, buy with cash, save as much as we can, and have no debt.
While he splits his time between a part-time job and his consulting business, I’ve been unable to work for several years because of health problems. Over the next year, I hope to build up to working part time for my own business though I can’t work full time.
Our current income is $115,000, about $20,000 of which is dividends, interest, and rental income. We have two kids in college and their expenses are fully covered by the funds we’ve set aside for their education. We plan to give them whatever is left over when they’re in their late 20s.
My husband and I have very different investing strategies so as a compromise, I manage our finances except his retirement funds. That’s resulted in my IRAs totaling 75% of our retirement savings.
We’d like to both retire in five years after both of our children are out of college and hopefully on their own. I’d like him to start taking Social Security now but I have another eight years until I’m 62. He’s already earned enough to max out his benefits while I qualify for about 60% of the max. We’ll probably continue working a bit after we retire. I estimate that we’d earn about $40,000 together in today’s dollars.
How do we manage our retirement with such a difference in age, income, IRAs, and benefits? Should we stop contributing to his IRA and, instead, put that money in savings and regular brokerage accounts?
Married With Two Children
Dear Married With Two Children,
You and your husband are a team. That means that your retirement plans should be decided together. It’s fine if you take the helm on implementing your strategies, but you should both have a say in what you actually do with your money. You’re fortunate to have a very large nest egg, and it is in the best interest of both of you to discuss it at length.
It sounds like you have different perspectives on your assets and strategies, not necessarily major disagreements where both parties are unwilling to compromise. That’s a fantastic start, as money can be a huge stressor on a marriage, and it can cause a lot of anger and resentment.
Before you get to the investment strategies, and where to put your money, talk out expected expenses in retirement. What do you anticipate your expenses to be, remembering to include the big-ticket non-discretionary bills, like housing and taxes, as well as the fun stuff, like travel and hobbies?
Don’t forget to include a pot of money to be left untouched for the unexpected, of which healthcare should be considered (but also the headaches, like home and car repairs). Many couples wonder how to pay for, or manage, long-term care needs in retirement — do you have a plan for that? If not, add it to the list of things to map out, if even at a very basic, bird’s eye level.
You mentioned you want both of you to retire in five years. If that were to happen, your husband would qualify for Medicare, but you would not, so you’ll have to figure out where you’re getting your health insurance and how much that will cost. Private insurance is an option, but it can be expensive. If you intend to work in some capacity in retirement, try finding a job that offers a health benefit to cover yourself.
Spousal benefits
As for Social Security, if your husband has maxed out his benefit, you might want him to wait until at least Full Retirement Age to start claiming. If your husband is 10 years older than you, that puts him at about 1960 for his birth year, which means his FRA is age 67.
“A benefit is reduced 5/9 of 1% for each month before normal retirement age, up to 36 months,” the Social Security Administration said. “If the number of months exceeds 36, then the benefit is further reduced [by] 5/12 of one percent per month.” That means if your husband claims three years (or 36 months) before his FRA, he’s getting a permanent 20% cut to his benefit. If he were to delay his retirement even further, anywhere from FRA to age 70, he’d receive an additional 8% credit per year.
It is important to note that his claiming decision affects you, too. When to claim Social Security is critical because of spousal benefits. Spouses have the option to get their own benefit or up to 50% of the other’s benefit, if they claim at FRA and the other spouse was the higher earner. Delayed benefits don’t impact spousal benefits, which is what the lower-earner gets while the spouse whose record is being used is alive, but they do affect widow(er) benefits.
“The widow(er)’s insurance benefit rate equals 100% of the deceased worker’s primary insurance amount plus any additional amount the deceased worker was entitled to because of delayed retirement credits,” the Social Security Administration said.
If you both couldn’t afford to delay Social Security, not even until FRA, then yes, it makes sense to claim early, but if you could find a way to delay Social Security, at least until FRA, you could both be doing yourselves a great service. Of course, this also depends on factors beyond assets, such as longevity and health, so be sure to look at the big picture when you’re doing the calculations.
These numbers are subject to change, but seeing figures will give you a little bit more insight into how you should make your money work for you, as well as how to compromise to make that happen.
After you have a rough draft of your retirement expenses, you might see for yourself if you should stop contributing to an IRA to funnel more money into savings, or if your current strategies are working. There are always qualified and trustworthy financial planners you could collaborate with, if even only on a one-time basis for a financial check-up.
Date nights
Date nights are a good time to discuss money (just, perhaps, not every date night). This could be a meal out, or even just at your kitchen table with your favorite drink or snack. Whatever it is, sit down with your husband and talk about your retirement plans. (Keep in mind, you will likely need multiple conversations, as financial planning requires regular assessments and occasional adjustments.)
So while you’re at it, include your estate plans in the conversation, and make sure you have — sooner rather than later — important documents in place, including powers of attorney, healthcare proxies, wills, list of assets where you can name beneficiaries, and so on.
Here are a few questions to consider: Where will you live, and how will that affect your monthly expenses (think property and income taxes, transit, recreation, health facilities, distance from family, etc.)? How will you manage your real estate? Will you have someone doing that for you? What role do your kids have in your retirement, if any? Will you travel a lot, and how big of a budget are you willing to allocate to that?
If your investments were to be a bit more conservative or aggressive, how might that affect your nest egg as well as your comfort in retirement? Do you have a healthy amount of diversification — account diversification, such as various types of savings and investment vehicles; investments, including asset classes and cash; and tax liabilities, often split between Roth and traditional accounts, for example?
This isn’t exactly the most romantic conversation. However, neither of you would want to leave your spouse with the grief and bureaucratic nightmare of estate management.
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