Couples born between 1937 and 1964 disagree on just about everything related to retirement, according to a recent study by Fidelity Investments.
- 60% don’t agree on their respective retirement ages
- 44% don’t agree on whether they will work in retirement
- 42% have different ideas about their lifestyle in retirement
Interestingly, nearly half (44%) said they never argue about money. Rather than indicating harmony, this figure may be reflecting the fact that they aren’t even talking about their finances. Such widespread disagreement on fundamental retirement issues such as when to retire, whether to work, and how to live seem to indicate that couples simply aren’t communicating.
The most disturbing finding is that only 15% of couples feel confident that either of them could assume responsibility for their joint finances if necessary. Clearly, there is a disconnect between couples when it comes to thinking about retirement.
The study didn’t indicate whether the disagreeing couples had financial advisors, but it’s a good bet they do not. (All we know about their financial situation is that they had household income of at least $75,000 or investable assets of $100,000 or more.) In fact, one of the most valuable services a financial advisor can perform is to facilitate a discussion of important retirement issues between couples and help them reach agreement. Let this be a wakeup call to all advisors to schedule periodic meetings with husbands and wives together for the purpose of making sure they are on the same page with respect to retirement and life plans.
Different visions of retirement
After working hard and providing for the family for 30 or 40 years, the husband may be ready to embark on a true life of leisure. For him, retirement means just that, and he may assume his wife will want to drop everything and join him in the fun. The wife, on the other hand, may have visions of extending her career or engaging in meaningful volunteer work. The book Smart Women Don’t Retire—They Break Free epitomizes many women’s views of retirement as a time to focus on service and embark on new, creative endeavors. While she is contemplating exciting work and volunteer opportunities, he is absorbed in Golf Digest and planning trips to the top 100 golf courses in the world. Any couple with this degree of disconnect should start talking now about how they envision living out the rest of their lives.
Here are some books that can help pre-retirees prepare psychologically for the next phase of life:
Women Confronting Retirement: A Nontraditional Guide, edited by Nan
Bauer-Maglin and Alice Radosh
How to Retire Happy, Wild and Free: Retirement Wisdom That You Won’t Get
from Your Financial Advisor, by Ernie J. Zelinski
Retire Smart, Retire Happy: Finding Your True Path in Life, by Nancy
K. Schlossberg
Your Retirement Your Way: Why It Takes More Than Money to Live Your
Dream, by Alan Bernstein and John Trauth
Retirement plans got derailed
The economic downturn is causing more baby boomers to push back their expected date of retirement—if they plan to retire at all. A recent USA Today article paints a grim picture of baby-boomer life right now. Between job losses, portfolio losses, and being sandwiched between struggling adult children and aging parents, many boomers are simply trying to cope with the economic realities of everyday life. Who has time to imagine life on a sandy beach, especially when it seems that such dreams have virtually no chance of coming true?
When talking with couples who feel their retirement dreams have been shattered, help them develop a new vision of retirement. It may start later than they’d previously planned. It may include work for pay. It may involve a simpler lifestyle. But the validity of long-term financial planning has not gone away simply because their previous plans have gone awry or they’re too busy putting
food on the table.
Planning for old age
Let’s ditch the term “retirement” as a euphemism for old age. Retirement is optional. Old age is not. If visions of sandy beaches won’t get baby boomers to plan ahead, maybe a visit to a nursing home will. There you will find that the overwhelming majority of residents are women who have outlived their husbands. If you visit one of the lower-quality nursing homes, you will find that most of the residents have spent down their assets and qualified for Medicaid. If this won’t get your couples—at least the wives—thinking about the future, they truly are deluding themselves.
Unless a couple has personal circumstances suggesting otherwise, the typical planning scenario has the husband dying first and the wife living on for a good many years. The average life expectancy for a 60-year-old today is 20.7 years for men and 23.8 for women, according to the latest National Vital Statistics Report from the Centers for Disease Control.
The best thing you can do with these numbers is to assume that the husband will be one of the 50% who dies before age 80.7 and the wife will be one of the 50% who lives past age 83.8. This is the worst-case scenario, especially if they are planning on Social Security for a good portion of their income, because in order to receive two checks, both spouses must be alive.
If you can get couples to implement a few simple planning steps now, you can let them focus on their present-day lives and stop worrying about tomorrow. These include some or all of the following:
Pay down debt
Put a plan in place to accelerate debt repayments with the goal of being debt-free by a certain (reasonable) date. One of the reasons baby boomers aren’t retiring yet is that they still have too much debt. For many couples, choosing a retirement date is based less on their retirement account balance and more on their credit card or mortgage balance. Get couples to agree on when the debts
will be paid off, and you might get them to agree on their retirement date.
Build a bridge to Social Security
All high-earning husbands should plan on delaying Social Security to age 70. This will provide maximum income to the couple while he is still alive, and maximum survivor benefits to the wife after he dies. If a couple wants to retire before age 70, help them build a “bridge” of income during the intervening years using one or a combination of the following:
- Income from employment
- Income from a purchased annuity
- Withdrawals from investment accounts
If a maximum wage earner age 60 today applies for Social Security at age 62, he will receive $1,859 per month. If he waits until age 70, his benefit will be $4,082, assuming annual cost-of-living adjustments (COLAs) of 2.8%. If we plug these numbers into our Social Security spousal planning calculator and assume the husband dies before the wife, we find that applying at age 70 vs. 62, again assuming 2.8% annual COLAs, will give his wife a monthly income at age 90 of $7,091 vs. $4,029. The advantage to
survivors of delaying Social Security benefits is so clear that it should be mandatory for all clients. Your job, then, is to help them obtain the income they will need during the bridge period.
Consider long-term care insurance
Long-term care (LTC) insurance isn’t for everyone, and boomers particularly have a hard time laying out the money for it when they’d just as soon not contemplate the need for it. But a mental revisit to the nursing home shows why people buy it.
Contrast the typical Medicaid-accepted home with an alternative, such as remaining in the family home with a qualified home health care worker coming in to help with activities of daily living, paid for by insurance purchased back when they were in their 50s or 60s. Not every client can be sold on the need for LTC insurance, but the discussion alone will get them thinking, and it is your duty as a financial advisor to at least offer it as a vehicle for transferring the high cost of long-term care.
Teach both spouses to carry on
Only 15% of couples in Fidelity’s survey said they had confidence that either spouse could assume responsibility for their joint finances. Ask couples: What if one of you died? Is the other prepared to immediately step in and manage your joint finances? Do you know where everything is? Are you prepared to start paying the bills, filing the taxes, overseeing the investments, and making all the decisions?
Baby-boomer women tend to be more financially savvy than their mothers, but couples who have worked out a division of labor—her managing the budget and him overseeing the investments, for example—could indeed be setting themselves up for an operational challenge when one of them dies.
Baby boomers are redefining retirement in many ways. One way relates to the relative independence of husbands and wives compared with the dependencies of spouses in previous generations. Unlike their parents, who spent a lot of time at the kitchen table planning their future together, boomer husbands and wives may be envisioning different things for themselves as they contemplate the years ahead.
Having opposing expectations of retirement isn’t so terrible. If he wants to travel and she wants to work, these issues can be worked out. The important thing is to get them out on the table so plans can be laid for a satisfying retirement for both of them, including financial security for the surviving spouse.
