Saving for retirement is daunting. We know we should do it, we want to do it, but it can feel overwhelming figuring out where to start—especially if you’re a struggling millennial. But when you and your partner are at a certain point in a relationship, you need to get serious about your future. “Our number one suggestion when advising couples on how to plan for retirement is to work as a team,” Priya Milani, cofounder of Stash Wealth, a wealth management company, tells Brides. “As with most financial goals, working as a team is a sure way to get on track faster and more efficiently," she adds. "You will greatly benefit from a team mindset because it’s likely that when it comes to retirement, you each bring different strengths (and weaknesses) to the relationship.”
If you’re realistic about how much you need and you take the time to look at what options are available to you, you’ll be in a good place to move forward. Here’s what you need to know about saving for retirement as a couple.
Look at Your Situation—for Both of You
First, you might not have the same savings options available to the both of you. Especially with a changing work force and more and more people entering the gig economy, traditional pensions aren’t the only option. “Maybe one of your employers offers a really great match and the other doesn’t,” Milani says. “Maybe one of you is an entrepreneur and has access to a SEP IRA, which allows you to save for retirement while sheltering up to 25 percent of your income (up to $53,000 in 2018) from taxes.” I’m someone who doesn’t have a pension but, after some research, realized that I could still have tax-saving retirement accounts. When you’re in a couple, you can look at both of your options to get a more holistic view.
Think About How You Want to Retire
Once you have an idea of the options available to you, you need to be realistic about what you want from your retirement. “The first and most important step here is to discuss what kind of retirement lifestyle you expect to have,” Milani says. “This can be very difficult for millennials to do, because retirement (in the traditional sense) is SO far off. But the sooner you start, the less you’ll have to save overall. Over time, you can adjust your savings numbers as your income changes and you get a clearer vision of what kind of retirement lifestyle you want. Decades of jet-setting will require saving more money, obvi!” If you’re someone who wants to retire at 50 and travel the world, you’ll need to be much more aggressive with your savings goals than someone who plans a more modest retirement at 70.
Work Out How Much You Need
Then it’s time for the big questions—how much do you actually need? This is the question that makes me break out in hives, but it’s important to be realistic. The truth is, there’s no one number that works for everyone. “This is a really common question, but it’s different for everyone,” Milani says. “Knowing how much money you’ll need in retirement and how much to save today depends on your current age, current savings, expected retirement lifestyle, and life expectancy—many of these variables are hard to predict. When you’re young and retirement is a long way off, it’s smart to save enough to maintain your current standard of living in retirement. Use an online calculator like this one to approximate how much you need to save today to replace your income when you’re in retirement.”
It can seem scary, but when Milani breaks it down into actual numbers, it’s a lot easier to wrap your mind around. “If you and your partner earn $120,000 together and you’re 30 years old with $0 in savings, you’ll need to save approximately $14,000/year for 35 years to amass enough wealth that you’ll be able to consistently draw upon it to sustain a $120,000 lifestyle from your mid-60s to your mid-90s.”*
You Might Want to Bring in Professional Help
Now take a deep breath. I know those numbers are scary—but when working out how much you need, remember that you’re (hopefully) not going to have the same amount of expenses during retirement. “Using your current income is a good benchmark because, in retirement, a lot of your fixed costs like mortgage payments, raising kids, etc. will be gone,” Milani explains. “Not to mention you’ll no longer need to 'save for the future,' which means setting your current income as your goal will technically feel like a bump in lifestyle. That said, there will be other costs to think about, like possibly added healthcare costs.”
There’s a lot to take into consideration, so if you're really feeling confused or you have a lot of wealth to handle, getting guidance can help. “Using online calculators is a good way to start planning for retirement, but once you’re ready to take it to the next level and begin considering things like tax efficiency, estate planning, and/or possibly leaving money to your heirs, it’s a good idea to consult a professional,” Milani says.
Planning for retirement makes a lot of people feel uneasy, but it’s something that has to be done. Making some small sacrifices now can completely transform the way you live in later life. Don’t put it off—the sooner you start saving, the more your money works for you.
*Example is for illustrative purposes ONLY. It assumes a 7 percent growth rate and 3 percent inflation rate. Hypothetical or simulated performance is not indicative of future results.