Let’s not ignore the obvious. Everyone should be saving for retirement with a retirement account or two.
The reasons abound as to why retirement may not be at the forefront of your mind. I’m here to talk about a retirement account and the role it plays in relationships. Married, partnered, or co-habitating, it is far too common that one person takes the lead in the finances and this includes retirement accounts.
Each person in the relationship needs a retirement account. While we will ideally celebrate “Our Retirement” together-we need to ensure that my retirement and his retirement both have sufficient funds to support us.
Whether you are FI or not, each partner needs an account to maintain stability and independence.
Retirement Account Problems In Relationships:
When only one partner holds the accounts there can be some common problems that arise. Even if you consider yourself the most functional team and full of trust- let’s just be real and acknowledge that relationships have flux.
- Being Held Hostage – If only one individual has the retirement accounts then a tendency to feel hostage to their wants and needs for the money can arise. Having to ask to buy something is a power dynamic we want to avoid.
- Social Routine will Be Separate– Your social lives will not always cross over. You may want to have book club or brunch and or maybe it is dropping $300 at the golf course. This can lead to arguments about the social lives of each partner.
- Allocation of Funds on a Fixed Income – Again, justifying what money is spent where can be a common problem, especially when differing values arise. Groceries being “too expensive” should not be an argument.
- Conversation Inclusion-Typically whoever has the retirement accounts (often the male in hetero relationships) will have the conversations with the financial advisor about the state of the income. Leaving the other partner out of the conversation despite being a part of the use of that money. While inclusion should occur all the time, often it does not, leading to a shift in the knowledge of funds. This also means a shift in power.
An Old Notion About A Retirement Account:
Retirement systems (especially pensions) are based on an old notion that women will be at home to care for the family and men will be the breadwinner. Often women who are married or in partnerships are counting on that retirement account for themselves as well.
The only problem is that divorce and breakups happen. While a divorce can yield a portion of retirement, it is not always guaranteed there will be much.
The best thing a woman can do for herself is be prepared to fund her own future.
With this being the case women face more barriers than men when it comes to saving for retirement. Women need to take time off to have a family. Women will also be more likely to take time off from work to care for a relative or family member. Tack on the wage gap which directly affects saving for retirement, and you have a whopper of a wall for women to climb to get to retirement savings goals.
Women who are not working cannot contribute to many plans at all. They can contribute to a spousal IRA if they are married, but traditional 401k is not an option.
Millennials Have Even More Problems Than A Retirement Account:
We know. These avocado toast loving, wine drinking millennials are killing everything including the economy. We know because we are them and totally disagree.
Millennials are excellent savers and on average save 19% a year. The only problem is that Millennials are not saving for retirement. In fact, on average millennials are saving 4% of their income each year for retirement.
This is because millennials have shifted to a lifestyle choice that is different from all past generations. The focus is not on a stopping point 40 years from now, but a way to get to a life they want doing what they want. Not too far off from the FI movement itself.
Where You Should Start:
As successful retirement does not have zero problems. That is life. However planning your retirement as a couple who are also individuals is a good place to start. It is important to remember that preparing for the best time of your life should not be the cheapest.
There is nothing harder than the first step.
Step 1: See What Retirement Account Is Available for You
Check Your Work Options
If you are working check in with Benefits and HR to see what options may be available. Just send them a quick e-mail. Generally you are contributing a small amount already, but see if you can increase this. Or, see if accounts like the 403b or 457 are available for you. I have an article on these retirement options here.
No Work Options?
If your work has no retirement options, open an IRA. These are offered by banks and brokerages. You get to pick the investments (just watch out for hidden fees) and contribute each month. You can also open a Roth IRA which uses funds that have already been taxed (thus not tax deductible).
Even if your employer offers a 401k, having multiple retirement accounts is a good idea. So consider an IRA if you can contribute even after bumping up your work plan contributions.
You have options for saving for retirement even if you are self employed. You can enroll in a SEP IRA or solo 401k.
Plus, you can still open an IRA as these are available outside of the traditional work environment. This may also be a good option if you are leaving a job and want to roll your 401k over into a Traditional or Roth IRA. For more on self employed retirement plans check out this article by NerdWallet.
Step 2: Review your Budget
Saving for retirement means taking a hard look at your budget and expenses. Chances are you will need to boost your contributions. It may be that you are saving for retirement for the first time which means finds ways to cut the budget or move things around.
While finding an extra $50 a month is approachable, I recommend try to get a bigger chunk to go away each paycheck. While some FI and FIRE pursuers boast a 50% savings rate, lets try for a more reasonable number if you are just starting out.
10% of your monthly income would be a great place to start. This can be split between an IRA and your 401k or go all into one account.
Step 3: Actually Do It
You did your research and found the funds, now you need to commit. This typically means filling out some sort of form online or sending it in to your work. From there is becomes automatic and you can set it and forget it.
Step 4: Name your Retirement Account Beneficiary
This is where you can insert your partners name and information. It is important to not skip this step and leave your retirement account to those you love in case the worst were to happen.
Step 5: Calculate How Much You Need
Ordinarily, advice says to decide how much you will need in retirement first. To me, this can be overwhelming and you may not be able to see past the current finances. Saving what would be required for retirement is a big number.
This is why I advise calculating the big numbers after you have made that first hard step instead of giving up and saying “It is too much! I will work forever.”
Charles made a handy Retirement Savings Calculator you can use. Calculate and then adjust how much you contribute to your accounts. If they are already set up it is much easier.
Finals Thoughts About Retirement
The fear of running out of money is real. I mean it is real now as I am rebuilding my emergency fund, so I can imagine that compounds when living on a fixed income. This means you should each, as individuals, prepare for retirement and know all the details.
Your relationship is more important than money, but money is important to surviving retirement. (Hopefully, thriving)