Retirement in Houston, Texas: Couples May Want to Take Staggered Approach
In today’s environment, many people are having to adjust their retirement plans. Do you delay your retirement date, work part-time, alter your lifestyle? If you’re married, there may be another approach.
Will you retire at the same time as your spouse? Or is a separate, staggered retirement better for your family? In our nearly 50 years of advising families, we've observed couples employ a staggered retirement on many occasions, and it seems more common in the past decade.
Before you choose, it’s important that you have a strong understanding of the financial and emotional ramifications of when you and your spouse choose to retire.
are we (financially) ready to retire?
Before you decide whether to retire together, assess if you and your spouse are even ready to retire.
Nearly 60 percent of Baby Boomers have “no idea” how much they need to save for retirement, and that number increases for younger generations. While assessing how much to save isn’t easy, working to find your family’s “magic number” will give you much more clarity for the future.
What's your "number"?
Just using widespread average numbers, individuals between 65 and 74 years old spend about $55,000 a year, which is about $4,500 per month. But every person is unique in their spending, savings and financial needs. We see very wide variations in the families we work with.
Sit down with your spouse and your financial advisor to nail down a realistic monthly spending plan. It is critical that both spouses agree that the numbers planned for are realistic.
The sooner you can determine this number, the more time you’ll have to prepare. Keep in mind that some of the biggest expenses you’ll face in retirement revolve around where you live, how you’ll get around, and how healthy you'll be. Retirement in Houston, Texas, for example, is different than in other areas.
Source: U.S. Bureau of Labor Statistics, September 2018
Reap the benefits of waiting to retire
If necessary, delaying or staggering your retirement can mean a significant boost to your finances. If you or your spouse decide to keep working while the other retires, one of you will have the opportunity to continue earning income and will be able to take advantage of spousal benefits. The opportunity to allow your investment assets to further compound while some level of earned income continues is not insignificant.
healthcare savings and retirement accounts
Your healthcare costs may be significantly reduced if you have employer-provided health insurance. If you or your spouse retires first, they can be covered under the healthcare plan of the spouse who is still working. Employer plans for retired employees are less common than many people think, so be sure to take full advantage of yours if you have one. Today, only 19 percent of big corporations provide retiree health coverage, down from 32 percent in 2008, according to the Society for Human Resource Management.
Continuing to work also means one spouse can keep contributing to tax-deferred retirement accounts. Whether you have a 401(k), IRA or other account set up, you still have time to increase your retirement savings while working. As mentioned, if the average individual between 65 and 74 spends $55,000 per year, delaying your retirement just two years is equivalent to an extra $110,000 in asset accumulation.
be strategic with your social security
You and your spouse’s Social Security benefits will be a major component of your financial picture in retirement. Generally, the sooner you take your Social Security benefits, the less the monthly benefit will be.
You can begin obtaining Social Security benefits individually or on your spouse’s behalf as early as age 62. Your payments increase 8 percent for every year you delay collecting payments after full retirement age (age 70). Conversely, taking your benefits as soon as you turn 62 will reduce your monthly benefit permanently.
This similarly applies to spousal Social Security benefits. Similar to your individual Social Security benefit, spousal benefits are reduced if taken before reaching full retirement age. The maximum benefit is half the benefit your spouse will receive at their full retirement age.
If you’re healthy and can afford to wait, consider delaying your Social Security benefits. A financial advisor can be a great resource for analyzing your options. Where both spouses have an independently calculated Social Security benefit, there can be significant gains in retirement security by correctly coordinating your claiming strategies. If you want to discuss your retirement in Houston Texas, contact the advisors at Linscomb & Williams. It’s never too early to start the discussion.
IDENTIFY BUCKET LIST ITEMS
After assessing your basic needs, you can now determine your must-haves and nice-to-haves. There is no right or wrong answer on how to categorize your spending. However, prioritizing your cash outflows is a great place to start.
For example, if travel is part of your bucket list, the airfare, hotel stay and any other associated expenses should be included in your budget and financial plan. Otherwise, you’ll be blindsided by large, high-priority expenses, and you may have to dig into your savings or use a credit card to cover the costs.
DON'T FORGET YOUR EMOTIONAL AND MARITAL NEEDS
Your financial picture, of course, is the primary factor when assessing your retirement. But it’s also important to consider how retiring will affect your personal lives. Almost half of married couples retire around the same time or at least within two years of each other, which can create significant emotional and financial changes. Like your finances, the emotional and marital components require planning and a thorough conversation.
Are you ready to retire? For some, retiring and finally becoming free of the daily grind means more time to pursue other ventures. For others, retirement can present the challenge of a major loss of identity, responsibility and mission.
Furthermore, how will your roles change if only one spouse retires? For some, this can mean rearranging daily chores, schedules and responsibilities. If not communicated effectively, you and your spouse may butt heads unnecessarily and start your retirement off on the wrong foot. It’s important to have hobbies and activities that can be completed both together and separately to balance your personal time properly.
If you have adult children, remember that they may nonetheless still call for financial support after you retire. Whether it’s paying for a wedding, first-time home purchase or other major life events, be sure that you, your spouse and your financial advisor are on the same page and account for these possible family expenses to which you may feel committed. Taking on unplanned financial burdens can create serious leakages in your retirement savings.
the bottom line: work with your advisor to tailor your retirement
The ideal retirement approach is what’s best for you and your spouse. If you both decide to retire around the same time, it’s critical that you discuss how to manage the dramatic changes that will take place personally, as well as how you will manage with a major shift in your financial picture.
Your financial advisor is a fantastic resource to help you approach the complicated planning associated with transitioning into retirement. At Linscomb & Williams, we help clients with their portfolio adjustments, budgeting for future expenses and taking Social Security at the right time, among other important decisions that go into a retirement in Houston, Texas. Imagine the peace of mind that comes from having a financial advisor as your go-to partner in this time of your life.
With good planning, your transition out of the workforce can be seamless and secure. Remember, the goal is to happily live the retirement you’ve worked so hard to build.