Getting ready for retirement? Just salivating at the thought of you and your spouse getting in that RV and roaming around the country? Or is your dream sitting on that deck in the morning with your spouse, a cup of coffee and a good book?
If you and your spouse haven't yet sat down and talked about what you will do in retirement, you'd better do it now. Retirement experts say there are a lot of mistakes couples make in retirement, and many of them involve communication and planning, or the lack of it.
"It's easy to make mistakes because retirement can be complicated, so it's not a rare thing," says Matthew Shafer, economist and author of The Future of Your Wealth."Most mistakes have to do with not doing planning."
So, here are seven of the biggest mistakes couples make in planning for and living in retirement.
1. They never talked about what each of them expected retirement to be.
"When one stops working or both stop, they spend a lot more time together," says Joe Duran, CEO of United Capital in Newport Beach, Calif., and author of The Money Code. "For most of their lives they are raising kids, and that is their distraction." When kids leave, it is an awkward period — and a time when divorces happen. They stare at each other and ask if they like the person they're with, Duran says.
"If they get close to retirement, if they haven't talked about what they want life (in retirement) to look like, they may find the answer is widely different," Duran says. The spouse who has not been working is comfortable with life. When the other spouse retires, it suddenly cramps the lifestyle of the person who was already home. "They don't know how they should be interacting," Duran says. "Peoples' space and boundaries get trodden on."
Author Lynnette Khalfani-Cox, founder of AskTheMoneyCoach.com, says many people consider retirement to be their "second act," or a time of reinvention. "During this time, retirees or pre-retirees may explore personal interests or even professional goals, such as starting a business, that can lead them to drift apart from their mates and squeeze their finances too," she says.
"It goes without saying that economic well-being is important in retirement. But so is emotional happiness and personal satisfaction. Unfortunately, a lot of older couples are getting more dissatisfied with one another — as evidenced by the fact that divorce after age 50 is getting more common. Divorce can sap a couple's retirement assets due to big legal bills, and the process of splitting resources to accommodate two households instead of one."
2. Couples in second and third marriages didn't think to plan for their potentially unique problems.
"A record number of Baby Boomers are in second marriages," says Manhattan estate attorney Ann-Margaret Carrozza. "That brings up very specific retirement planning challenges — specifically, how do we deal with adult children who need money?"
A big source of conflict is when you have a blended family, and, for example, one partner's child keeps calling for funds, needing more and more money. You must ensure that the children's needs are not going to jeopardize your own retirement security, she says. "I would caution folks planning for retirement against co-signing loans for children and co-signing grandchildren's student loans," she says.
"The second marriage situation also causes a couple to deal with who gets what at death," Carrozza says. There is often a conflict between providing for surviving spouses and providing for children from the first marriage.
Bradley Zucker, president of Safe Money Advisors in Las Vegas, says full disclosure is also important. "First and foremost, you must fully disclose all debt and financial obligations — car loans, credit card debt, loans to family and friend. And it's important they they get copies of credit reports."
3. They didn't do proper financial planning.
Many retirees aren't realistic about spending related to the amount of money they have, says Shafer. "Either they are not accumulating enough assets for their lifestyle, or the lifestyle they plan to live costs more than what their assets will cover," he says.
"My clients fail to properly calculate the amount of money they will need in retirement," says Carrozza. "There is an idea somehow that expenses will be much less in retirement. In reality we should expect expenses to increase because of greater medical needs. Medical costs go up, especially long-term care. We can also expect to see inflation come back. We would all do well to live below our means as we are embarking on retirement planning."
Only a small portion of retirees have a financial plan, says Duran. Too often, they realize that their money isn't growing, which is fine if they live to 78 or 80, but not if they live to 90. "Unfortunately if you are not working, you have finite level of resources," he says.
4. They haven't planned for emergencies.
"Just because a financial situation looks healthy today, you can't assume you will be ready for an emergency tomorrow," says Zucker. "Illnesses, accidents, home repair — you need to turn to your emergency reserve account. If you don't have one, it could lead to tax implications.You need a liquid account, three to six months of expenses. That takes the stress and burden off the financial nest egg."
5. The couple didn't consider the costs of health care or long-term care.
"If they want to go to any doctor they want, health care may be out of their insurance or Medicaid service system," Shafer says. "They may have to set aside their own assets."
Carrozza says failing to plan for long-term care expenses is a huge mistake couples make. Couples need to consider long-term care insurance, especially the newer hybrid policies that are now being offered as riders to traditional life insurance policies. "Eight out of every 10 couples will have an individual who requires long-term care," she says.
6. Only one partner is handling financial matters.
"A very big mistake to have one partner who is completely in charge of financial and estate planning," says Carrozza. "I see that with clients often — one person is in charge of everything and the other doesn't quite know what is going on. It's important that both parties be fully conversant with estate planning and financial planning, and in habit of sitting down with their planner to make sure life changes and law changes are properly accounted for in the plan," she says.
Zucker said couples need to talk often about finances and financial decisions. "You have to regularly make time to talk about finances," he says. "It's important that both partners actively participate in these discussions. Keep it a conversation. Do not to make it a business meeting. If one spouse dominates finances and becomes ill, it leaves the uninformed spouse without direction."
He says if a couple can't have conversations about money, they need to get the help of a financial counselor."It's about being open about money and having a plan."
7. Do not assume that just because you're married you can automatically act for each other in business and health care decision-making.
"Every couple needs health care proxy and power of attorney over each other," says Carrozza. "Power of attorney will allow them to move assets as needed should one of them become incapacitated."
She says she recently had a case of a couple in which one had a stroke. The other partner discovered too late that she was not able to legally sign for her spouse. She had to go before a judge to become her husband's court-appointed guardian, which took several months and cost several thousand dollars. "That would not have been necessary if they had power of attorney," she says.