Here’s a novel way to celebrate Valentine’s Day: Pull up two chairs at your kitchen table, pop a bottle of Champagne and start talking about retirement.
What could be more romantic than planning for your future together?
Here are five considerations that should be part of that conversation.
1. Your goals
You’re saving for a shared retirement, so it only makes sense to talk about what that looks like.
“The biggest thing is actually having a plan, and most people don’t,” says Scott Frank of Stone Steps Financial in Encinitas, Calif. “What are you going to do? Where are you going to live? How much are you going to be spending?”
Not only is that kind of planning key to how much you need to save — aiming to replace 80% of your pre-retirement income is a good place to start — it also makes the process more fun. Saving for retirement isn’t exciting, but saving so you can retire on the beach is.
2. Your account choices
Once you know how much you need to save, it’s about where you save.
“You’re going to retire as a couple, so look at all of your available retirement savings options as a couple,” says Larry McClanahan of SecondHalf Planning and Investment in Clackamas, Ore.
If you have a limited pool of money to save for retirement — as most people do — and one spouse has access to a 401(k) with matching dollars, that account is the top priority for both of you. If you each receive an employer match, aim to contribute enough to your individual accounts to fully capture both.
Then you can consider other options: non-matched employer-sponsored plans and Roth or traditional IRAs.
3. Taxes
Along with employer-matching dollars, taxes should be high on the list of considerations when choosing where you should collectively save.
“The ideal situation is for a couple to transition into retirement with significant retirement resources of different tax treatment,” says McClanahan. That requires a strategy so that you get to retirement with tax-deferred funds in traditional IRAs and 401(k)s, tax-free funds in Roth accounts and — if necessary — already-taxed funds in a brokerage account.
Doing so will allow you to mix and match your distributions in retirement, minimizing your tax burden as much as possible.
Keep in mind that if you have an employer-sponsored retirement plan, it may limit your ability to deduct traditional IRA contributions from your taxes, which could make a Roth IRA more favorable. However, in 2016, eligibility to contribute to a Roth begins phasing out at an adjusted gross income of $184,000 for those married and filing jointly.
4. Beneficiary designations
You’ve heard these horror stories in the news: Joe Millionaire forgets to update his beneficiary designations, accidentally leaving a fat 401(k) to his ex-wife.
The lesson is applicable for average Joes, too. The beneficiaries on your retirement accounts and life insurance trump your will. Keep those designations up to date.