Download C40400 Retirement x 2: Planning Tips for Couples

Retirement Planning x 2: Tips for Couples
Couples have a lot to gain by planning for their retirement. Here are some pointers on how
couples can plan effectively.
Some couples consolidate their money and manage it together. Others choose to keep
their money in separate accounts and assign each other specific budgetary responsibilities, then
use the rest of what they earn as they see fit.
While independent money management may be the only workable solution in some
partnerships, it can result in confusion and missed opportunities when it comes to planning for
retirement. Couples who maintain separate financial lives often approach the ends of their
careers with a mixed bag of assets that might include retirement plans with different employers,
investments in mutual funds and other securities, and perhaps money from an inheritance. At the
same time, they may have other assets — a home, for example — that are jointly owned.
Unless couples look at all of their financial resources and relate them to the realities of
life in retirement, they will have a hard time getting a clear picture of what assets they have, how
much income these assets might generate and how much investment risk they face. Here are
some steps couples can take to build a retirement plan that’s appropriate for their needs:
1. Hold a Financial Summit Meeting to Set Goals. Most marriage counselors will tell
you that money causes more friction between partners than any other issue. Couples often have
different financial priorities, spending habits, attitudes toward debt and preferred investment
strategies that can generate intense debate. However, reconciling these differences is critical,
because there is so much at stake. As you get closer to retirement, you and your partner should
sit down, perhaps with a TIAA-CREF consultant or financial advisor, and talk about your
financial goals and your attitudes toward money. Come away from the meeting with a set of
common goals for how you want to use your money in retirement, both for yourselves and
possibly for your children and/or parents.
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2. Develop a Strategy That Aligns Your Goals With Your Retirement Plans. Dual
earners generally have separate pension arrangements, even if they pool other savings. The type
of pension each earner has can determine the best retirement strategy for a couple. For example,
some pension plans require their participants to convert their retirement accumulations to
lifetime income; others allow various kinds of cash payouts. By planning together, couples can
use their plans jointly to accommodate a range of goals, from generating income and estate
assets, to financing a retirement home.
3. Estimate Retirement Expenses for Both of You and for Each Partner Separately.
Your lifestyle is likely to change in retirement, so it’s a good idea to draw up a budget for your
regular expenses and compare it with the income your combined retirement assets might
generate. It’s also a good idea to estimate how these expenses might change if one of you dies.
For example, some income options provide reduced income for a surviving partner in exchange
for higher income while both are living — an arrangement that can work well for some couples,
particularly when both are in good health. So look carefully at your budget to see which income
options might be most appropriate.
4. Consider the Laws That Affect Retirement Arrangements Between Married
Couples. Whether or not couples prefer to keep their finances separate, federal and state laws
and tax provisions make a certain amount of joint planning advisable. The filing of a joint tax
return is the most obvious example, but there are many others. For instance, people with assets
from private retirement plans are subject to ERISA rules requiring that no less than 50% of the
pension assets go to the spouse unless he or she signs a waiver. If one or both spouses are
divorced, ERISA rules may entitle an ex-spouse to a portion of the retirement assets. Knowing
the terms of your plans can help each partner make the most effective use of the combined assets.
To find out which strategy might be best for you, consult your tax advisor regarding your
particular situation.
5. Consider the Issues That Age and Health Differences May Present. Couples with
large age differences may face some additional planning challenges that make working as a team
especially important. Take the case of a couple with an eight-year age difference, where the
younger spouse’s Social Security benefits outpace the older spouse’s by a wide margin. If the
younger spouse waits until age 66 to retire with full benefits, the older spouse, at age 74, will get
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little advantage from switching to the younger spouse’s benefit. If the younger spouse starts
benefits at age 62, however, it may work out better for both.
Joint life annuity options, which are annuities that cover two people and pay benefits
until the last survivor dies, may also be problematic for these couples, because the older spouse’s
income would be reduced to accommodate the longer life expectancy of the younger partner. A
similar issue may arise when one partner is healthy and the other is less so. While lifetime
annuity income may make good sense for the healthy partner, an income option that leaves the
principal intact might make better sense for the spouse. There are solutions to these dilemmas,
such as delaying annuity income or converting only a portion of it to lifetime income.
6. Review Your Combined Investments to Reduce Exposure to Inflation or Risk.
When couples have separate retirement and other investment plans, they are often unable to see
the big picture of how all their money is invested. This can be especially problematic if both
partners have the same attitude toward investment risk. For example, if both are aggressive
investors, they may be overexposed to high-risk equity accounts that can get caught in a market
downturn right before they want to retire. If both are too conservative — sticking to lower risk,
fixed-income accounts — they risk not having enough income to keep up with inflation. It’s a
good idea to review how all your assets are invested and create a diversified master portfolio that
has the right balance of safety and growth opportunity. (Note, however, that diversification does
not guarantee against loss.)
7. Consider Managing Your Assets Under One Roof. Generally, it’s easy to move
money among different kinds of retirement plans. You can roll over assets among three
commonly used employer-sponsored tax-deferred retirement plans: 403(b)s from nonprofit
employers, 401(k)s from private sector employers and public 457(b)s from government
employers. You can also roll over 403(b) and 401(k) assets to a traditional IRA, and a company’s
rollover IRA can take in assets from other companies’ IRAs. If you consolidate assets after you
are both age 59½ and follow the proper procedures, you may be able to get all of your retirement
assets under one roof, with the exception of defined benefit (formula-based) pensions.
Consolidating multiple plan assets into individual IRAs can help couples develop an integrated
investment portfolio, set up a retirement income strategy and simplify the process of managing
their finances in retirement.
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Before doing a rollover, be sure you understand all of the costs involved, particularly any
withdrawal charges. Also, be aware that there may be tax consequences associated with the
transfer of assets, and that indirect transfers may be subject to taxation, surrender charges and
penalties.
Also keep in mind that consolidating assets into an IRA is not always advisable. To cite
just one example, if you have a 403(b) plan and some or all of the contributions were made
before 1987, you can delay taking income on these older contributions until age 75. But you’ll
lose that option if you move the money to an IRA, since the IRA will be subject to the minimum
distribution requirements at age 70½. Consult with your tax advisor regarding your particular
situation.
8. Get Professional Advice. Planning for couples can raise complex issues, especially
when there are children involved, so it’s a good idea to review your situation with the right
people. An accountant can help you avoid tax problems on payout or rollover strategies and find
every tax break to which you’re entitled. If you don’t have insurance, a lawyer can draw up a
will and an estate plan and help you form a strategy for dealing with long-term care costs.
A TIAA-CREF consultant can also play a key role. Over the years, we’ve helped
thousands of families develop retirement income plans, adjust investment portfolios for
retirement and integrate assets from multiple plans. Any time you’d like to discuss your situation
with a TIAA-CREF retirement planning expert, please call us at 800 842-2776. Spouses and
partners are definitely welcome.
Note that neither TIAA-CREF nor its affiliates offer legal or tax advice. Please consult with your
advisors regarding your particular situation.
You should consider the investment objectives, risks, charges and expenses carefully before
investing. Please call 877-518-9161, or go to www.tiaa-cref.org for a current prospectus that
contains this and other information. Please read the prospectus carefully before investing.
TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services,
Inc., members FINRA, distribute securities products. Annuity products are issued by TIAA
(Teachers Insurance and Annuity Association), New York, NY.
© 2008 Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAACREF), New York, NY 10017
C40400
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