Marriage makes life easier in some ways and more complicated in others. This is also true for your retirement savings. Being married means you have a partner to help you save for your future, but you also need to save enough to cover the expenses of two people instead of just one.
It’s not an easy task, but the following three tips can make it a lot easier.
1. Create a retirement plan together
You and your spouse should have a clear idea of how you plan to spend your retirement. If you haven’t already talked about it, now is the time to do so. Think about your daily activities and expenses, as well as any major expenses that you are planning.
Once you know how you are going to be spending your time, you need to figure out how much your retirement is going to cost. It’s better to be overly generous in your estimates than overly conservative, because you never know what unforeseen costs will arise in retirement.
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Next, write down how much each person has already saved for retirement and how much you have left to go. Decide how much each person will set aside for retirement each month. You could each agree to save half the total, but a proportional approach might work better.
If, for example, you want to save $ 600 per month and one person earns $ 30,000 per year and the other $ 60,000, the higher income could save $ 400 per month while the lower income saves. $ 200 per month.
2. Use a spousal IRA
A spousal IRA is a great option for households that live on one income. It is a regular IRA that the couple opens on behalf of the stay-at-home spouse. The working spouse can contribute funds on behalf of the stay-at-home spouse, allowing the couple to save more for retirement each year.
But there are a few pitfalls. First, the working spouse must earn enough during the year to cover all the pension contributions they make to the spouse’s IRA and their own retirement accounts. Their contributions to the spouse’s IRA also cannot exceed the annual contribution limit. That’s $ 6,000 in 2022 or $ 7,000 if the account holder is 50 or older.
It should also be noted that the funds in a spousal IRA belong to the person whose name is on the account, even if the couple later divorce. Hope this won’t be a problem, but it’s something to keep in mind when deciding if a spousal IRA is right for you.
If you decide to open one, you’ll need to choose between a Traditional IRA and a Roth IRA. Traditional IRAs give you tax relief this year, but then you’ll have to pay taxes on your withdrawals later. This is usually better for those who think they are in a higher tax bracket now than they will be after retirement.
Those who think they will be in the same tax bracket or in a lower tax bracket upon retirement should consider a Roth IRA. Contributions to these accounts don’t give you tax relief this year, but your withdrawals will be tax-free later. You can also contribute money to each type of IRA, but your total contributions cannot exceed the annual contribution limit mentioned above.
3. Have a social security plan
Married people can either claim social security on their own employment records, if they are eligible, or they can claim a spouse’s benefit on their partner’s employment record. The Social Security Administration automatically assigns each person the greater of the two.
How much each person receives depends on several factors, including their income during their working years and when registering. Each person has a full retirement age (FRA) assigned according to their year of birth. For most workers today, it is between 66 and 67. Signing up before your FRA means more years of benefits, but every check you receive is smaller. Deferring benefits, on the other hand, increases the size of your checks until you turn 70, but you will receive benefits for fewer years.
The right Social Security claim strategy depends on the lifespan of each partner. Those who think they are under 80 years old often have an interest in enrolling early, while those who expect to live longer generally receive greater lifetime benefits by delaying.
But just because you want to delay doesn’t mean you always can. Sometimes financial pressures force people to register for Social Security early, even if they don’t want to. There isn’t much that single adults can do about it, but married couples can still benefit a lot from the program with the right strategy.
When both partners have earned similar amounts over the course of their lives, it makes sense for each of them to delay benefits for as long as possible. But if one person earned a lot more than the other, it’s not always a problem for the low-income person to claim early. This may allow the higher income to delay benefits, and then, when enrolling, the lower income will automatically receive a spousal benefit if it is worth more than what they collect on their own.
Communication is the key
If you follow the steps above, you should have a solid retirement plan in place. Now is the time to test it. Each of you should be working towards your individual savings goals, and then you should check back after a few months to see how you’re doing. If either or both of you are struggling, you may need to rethink your retirement strategy or schedule.
You should also log in at least once a year afterward to make sure you’re still on track to achieving your goals. It doesn’t matter if your plans change over time. All you need to do is find the time to craft a new retirement plan to move in the right direction.
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