This Valentine's Day: Retirement Planning for Couples at Every Stage of Their Financial Life

It's a great time to sit down with your sweetheart and have a little chat about your goals. Here ares some highlights to discuss for young couples, middle-aged couples and couples hitting retirement.

(Image credit: JRL Photos)

Americans are living longer. There’s a 1 in 3 chance that one member of a couple will live to at least age 95, according to the EBRI. That means they need to plan for a retirement that could last 30 years or more.

But nearly half of pre-retirees (48%) say their only source of retirement income is Social Security, which is estimated to replace only 40% of the average person's income, according to the Alliance for Lifetime Income. And surprisingly, married couples with two salaries struggle more than couples with only one salary to maintain their pre-retirement standard of living, according to the Center for Retirement Research at Boston College.

To help protect your lifestyle in retirement — and protect against the risk of outliving your savings — you and your partner can develop a holistic financial plan for every stage of your financial life. While it might not seem very romantic, this Valentine’s Day is the perfect opportunity to evaluate your retirement plans to help you reach the dreams of a lifetime together.

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Young and Only Just Begun: Start While Time Is on Your Side

If you and your partner are at the start of your careers and life together, your financial concerns might focus on balancing immediate matters, such as buying your first home and starting your family, while paying down debt from student loans. In fact, the majority of Millennials say their No. 1 concern is taxes, while the cost of health care and saving enough for retirement are tied for second and financing a home or another large expense is third, according to our annual Advisor Authority study of more than 1,600 RIAs, fee-based advisers and individual investors.

But saving for the future should not take a back seat to your current expenses. Time is on your side if you use the power of tax-deferred compounding. Make every effort to start early and maximize contributions to your tax-deferred qualified accounts, such as 401(k)s and traditional IRAs, which have the benefit of being funded with pre-tax dollars.

If both of you are working, be sure that you work together to save for retirement. Compare the funds in your employers’ qualified plans and work as a team to select the best investments for your shared goals, instead of making these choices on your own. If one partner is not working outside the home, a spousal IRA may allow you to make contributions on their behalf. If one or both of you qualify for a Health Savings Account (HSA), this can be a way to save for future medical expenses while reducing your current taxable income.

Prime Earning Years: Protect Assets to Protect Against Outliving Savings

Both of your careers are on track, you’re earning more, you’ve built equity in your home, you’re saving to send your kids to college. Now it’s time to team up to save more tax-deferred for your retirement. After maxing out your qualified accounts, including any additional catch-up contributions after age 50, you can accumulate more tax-deferred by using a low-cost Investment-Only Variable Annuity (IOVA).

As you and your partner approach retirement, concerns about protecting your assets may rise, especially as volatility starts to feel like the new norm. In fact, roughly two-thirds of pre-retirees expect volatility to increase in the next 12 months, according to Advisor Authority.

As your portfolio becomes more conservative, including more fixed income, you might consider an “asset location” strategy to potentially enhance returns. By locating more tax-inefficient assets (such as fixed income, REITS, liquid alternatives and actively managed funds) in your tax-deferred vehicles and locating tax-efficient assets (such as buy and hold equities and ETFs) in your taxable accounts, you can minimize the added drag of taxes on your investments, for greater growth potential.

With interest rates still near record lows, Advisor Authority also shows that pre-retirees are using fixed annuities and fixed indexed annuities as another solution for bonds. Low-cost variable annuities (VAs) with guarantees can allow you to accumulate more tax-deferred, while offering upside potential and downside protection, with the option to turn on a future stream of retirement income that you can’t outlive.

The Retirement Years: Income Now and for Life

At this point, you and your partner should already have a strategy to maximize Social Security. It usually helps you maximize benefits as a couple if the higher-earning spouse waits until full retirement age, or later, to begin collecting.

In many cases, this means the lower-earning spouse can start collecting benefits as early as age 62, then apply for spousal benefits later when the higher-earning spouse begins collecting. With smart planning, a couple can typically secure higher benefits the longer the high earner waits — and this could also mean higher survivor’s benefits for the spouse who lives longest.

To complement Social Security, you could convert a portion of your portfolio into a guaranteed income stream by investing in a single premium immediate annuity (SPIA). This is also the time to consider “turning on” the income stream from any variable annuity with a living benefit rider that was purchased during the accumulation phase.

A guaranteed income floor can help provide protection against market declines and sequence-of-returns risk when drawing down your portfolio and may allow you to invest another portion of your portfolio more aggressively for greater growth potential, to fund a retirement that is likely to last 30 years — or more.

If you don’t know where to start, make it a priority to find a qualified adviser today. Also consider the tax treatment of withdrawals from all your income sources — taxable, tax-deferred, tax-free — to protect your retirement savings with a tax-efficient income strategy. A tax advisor can help answer your specific questions.

This Valentine’s Day, don’t just dream about a lifetime with the one you love. Take action now and work as a team with your partner and your adviser to ensure that you are financially prepared.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Craig Hawley
Head of Nationwide's Annuity Distribution, Nationwide

Craig Hawley is a seasoned executive with more than 20 years in the financial services industry. As Head of Nationwide's Annuity Distribution, Mr. Hawley has helped build the company into a recognized innovator of financial products and services for RIAs, fee-based advisers and the clients they serve. Previously, Mr. Hawley served more than a decade as General Counsel and Secretary at Jefferson National. Mr. Hawley holds a J.D. and B.S. in Business Management from The University of Louisville.