When only one member of a married couple retires, planning and preparation are still necessary - in fact, they're essential. That's because couples often underestimate the social, psychological and financial impact of having a spouse retire.
The retired spouse will also have considerably more free time than the working spouse, so who does which household chores and how to spend leisure time are likely to change.
Here's how to prepare so the inevitable changes don't take a toll:
Usually the amount you two will net will be lower. Do the math based on the retiring spouse's new "take-home" from the monthly amount s/he will be taking from a retirement account and/or Social Security. Better to know now what you'll be working with than after the smaller amount is in play.
Prepare for the possibility that the new retiree may want to do things the working spouse still won't be able to, so plan for what things you will and will not do able to do together. The retiring spouse and the working spouse need to clearly communicate about shared and separate experiences in order to avoid conflict.
Roles and duties could change when one spouse retires. The working spouse may come home after a hard day not expecting to cook and clean, even if that was his/her role previously. You want to avoid "This guy is annoying me because he has nothing to do."
Your personal routines will also need to be adjusted. The retired spouse could become a night owl, staying up late to watch movies, which could disrupt the working spouse, who has to get up early to go to work. An employed spouse might want to relax in the evenings after working all day, while the retired spouse slept in and is eager to go out and socialize. Look ahead as realistically as possible and prepare for what you see.
Married couples can coordinate when they sign up for Social Security to maximize their benefit as a couple.
Benefits payments are reduced if you enroll in Social Security in your early 60s. For those who wait beyond 66 or 67, benefits increase every year until age 70. If both spouses are in good health, it's typically recommended that people wait until their full retirement age, 66 or 67 depending upon the actual year born, to claim Social Security benefits. Remember, these decisions are very interdependent, so a good practice is for couples to create a two models: one based on what it would look like to have one spouse claim Social Security versus delay Social Security and vice versa, and one to model what happens to Social Security when one spouse dies.
The working spouse might be continuing to save for retirement, but it's also important to protect the money you have already accumulated. Since retirees often shift a portion of their retirement savings to more conservative investments that are less likely to lose money, you will want to decide sooner than later the amount of risk you can tolerate now that one of you is no longer working.
Another thing to consider according to a number of financial planners: If as a couple you fall into a lower tax bracket due to loss of one income, convert some of your traditional 401(k) or IRA savings to a Roth account. The tax on the conversion will be charged at your new lower tax rate, and you won't have to pay taxes on future growth in the Roth account.
And here's a little known option: Since one spouse is still working, s/he can make an IRA contribution for the nonworking spouse in a spousal IRA. You can defer paying income tax on up to $5,500 in a spousal IRA, or $6,500 for people 50 or older. The rules: The couple must be married, file a joint return and have earned income of at least the amount being contributed.
When one spouse continues to work, both spouses might be eligible for employer health insurance; look into it in advance.
Either way, once each of you turns 65, make sure to sign up for Medicare on time. If someone retires and doesn't file for Social Security until they are over 65, they still must enroll in Part B at age 65. There is a penalty if you don't enroll in time, and it lasts for the rest of your life. For every 12 months you don't enroll, it's a 10% hike.
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