Retirement Planning for Married Couples
In this post, we use MoneyBee to illustrate the many financial aspects a married couple needs to factor into their retirement planning.
Retirement planning can be far more complicated for a married couple than for an individual. At the same time, it comes with many perks and advantages. In this article, we go over a married couple example using MoneyBee to point out the many unique financial aspects that have to be taken into account.
Differences in age and retirement timing
A large portion of the retirement planning math is tied to age, making it critically important to reflect each spouse's age. Same applies to the retirement timing of each spouse. We don't want to be off by a few years of full-time income! MoneyBee let's you define your spouse's retirement timing as either a fixed age or as number of years before or after you retire.
Capital gain tax deduction if selling your home
Married couples can deduct up to $500,000 from their taxable capital gain upon selling their primary home. Unmarried homeowners can only deduct $250,000. MoneyBee takes this into account if you plan to sell your home at some point in the future, as does the couple in the example below:
Health care costs
MoneyBee projects health care costs with both price and age inflation, which requires these projections to be done separately for you and your spouse. It automatically looks up the benchmark health insurance premium for your age and retirement area. You can adjust as needed. It then works out your spouse's health care costs based on your age difference.
Compensation and retirement benefits
If both of you are working and saving for retirement, it's important to reflect your respective income and retirement benefits, such as 401(k) match and pensions. This matters even more since MoneyBee supports retiring at different times and saving a different percent of pay. If you have any pension benefits, MoneyBee will also automatically apply survivor benefits (by default, qualified pension plans in the U.S. pay 50% of the deceased spouse's pension to the surviving spouse).
Current savings
Even though couples think of their assets as being jointly owned, retirement accounts do need to be entered separately. Required minimum distributions are determined based on the owner's age and so are penalties on early withdrawals. MoneyBee automatically assumes the older spouse draws down their pre-tax savings before the younger one does to minimize the risk of incurring penalties. It also moves any remaining funds after the death of one spouse to the surviving spouse, and applies RMD rules and taxes accordingly.
Social Security benefits
Since spouses can be of different age, have different earnings and retire at different times, their Social Security benefits need to be determined separately too. Even if one spouse never earned a Social Security benefit on their own account, they will still be able to get a spousal benefit on their spouse's account.
MoneyBee automatically calculates and applies any spousal and survivor benefits. It also allows you to specify different Social Security commencement ages for each spouse. This can come in handy if you can afford to live on just one Social Security benefit and hold off on the other until age 70 to maximize your late retirement subsidy.
Retirement jobs
If filing your taxes jointly, it's probably of lesser importance to enter any part-time income in retirement separately. However, it may become more relevant if you want to stop your part-time jobs at different times. Note also that your retirement jobs are assumed to start when your retire. So if you plan to retire at different times, your retirement jobs will also start at different times.
Assumptions
Finally, just as your current numbers may be different, they may also grow differently over time. MoneyBee lets specify a different salary growth rate and pre-retirement investment return for you and your spouse. Importantly, it also lets you define your life expectancies separately and ensures that you'll have sufficient funds for the rest of the life of the last survivor.
In addition, MoneyBee lets you specify a fixed percent of pay your spouse plans to save towards retirement. If you choose the default "Same as yours", MoneyBee will vary your spouse's saving rate with every retirement option (it automatically evaluates all combinations of your saving rate, retirement age and personal budget in retirement).
Taxes
Being married and filing your taxes jointly makes a big difference. MoneyBee reflects your marital status in its (admittedly simplified and approximate) tax estimates for each year in retirement. It also estimates your state taxes for each U.S.state and D.C.
Conclusion
While a married couple does need to enter a lot more information in MoneyBee, they can also have the peace of mind that the many important financial aspects that apply to them are taken into account.