Only one-third of couples have even discussed retirement planning, according to a 2016 study by Hearts & Wallets retirement consultants. Fidelity, an American financial investment firm, recently determined 47 percent of couples disagree on how much money they will need for retirement.
If you’re like most couples, money conversations tend to lead to bickering—whether to take that much-needed vacation or save for retirement. However, failing to actively plan now to save for later in life could cost you hundreds of thousands of dollars for your nest egg. Also, the age you plan to retire could be several years off from what you initially estimated.
Lifetime income and retirement security experts TIAA Research found that men and women have very different views on how they intend to spend their retirement. Men plan to engage in more sports and outdoor activities, while women want to spend more time socializing with friends and family. Here’s how to start planning for your joint retirements at any decade of your working lives.
20s and 30s (college/early career)
In the early years, most couples are grappling with modest incomes, steep rent and student loans. In fact, the average college graduate carries a debt of $28,950. In addition to these challenges, there may be plans to start a family, buy a property or yearn to travel. Still, what you do now has the biggest payoff, because your dollars will have the longest time to grow. If together, you can set an extra $100/month into retirement accounts starting at age 27, you’ll have an additional $240,000 by age 67 (assuming your money grows at 7 percent a year).
Get in the habit of raising your employer 401(k) contribution by at least 1 percent of pay annually. Don’t be afraid to aim high. Your goal should be to save 15 percent of net pay each year. If your employer doesn’t offer a 401(k), opt for a Roth IRA. You’ll reap tax-free income later in life when taxes are likely to be a bigger burden. (For a non-working spouse, you could contribute up to $5,500 in 2016). Remember, the behaviors you adopt now will set the pattern of your financial future for decades to come.
40s (mid-career)
You may find yourself torn between two huge priorities: putting money aside for college for your children (should you have them) and retirement for yourself. Hash out a plan with your partner to stay on the same page. What age do you two plan to retire? Where do you see yourselves living? To afford a comfortable retirement, a 40-year-old couple with a combined household income of $100,000 should have amassed savings of 2.6 times their salary (or $260,000). At that same pay, at age 45, you should have 3.4 times your salary saved.
As for your children’s college fund, your retirement savings should come first. No parent wants to hear it, but no one will lend you money to finance your golden years. On the other hand, there are plenty of loans, grants and scholarships available for students to ease the burden of tuition costs. First, resolve to continue your 401(k) or ROTH IRA contributions. Then, decide together how much you will contribute to college expenses. One common formula suggests covering a third of the total bill from savings, a third through cash flow and a third through loans or grants. Another idea is to contribute enough for one year. Be open with your child about whatever plan you decide on and present it together.
Finally, one of the smartest things you can do at this time is keep your spending in check as your salaries grow. Resist the urge to keep up with friends who like to splurge on extravagances. If your current house is big enough, keep it. If your 10-year-old car is still chugging along, drive it. Your best ally is the automatic investing feature of your paycheck, which deducts your 401(k) straight from your pay before it ever hits your bank account. Forced savings help you avoid lifestyle spending, which can creep up on you.