If you’re part of a couple, whether married, in a civil partnership or just committed, retirement planning means considering both partners. That’s easier said than done. Simple retirement calculators are usually based on just one individual; and they’re usually too simplistic anyway. There are many more things to consider when planning for a couple.
The first hurdle to overcome is to make sure the members of the couple communicate effectively with each other. If neither understands the other’s finances, then neither will be able to plan effectively. Trust is obviously important, but so is recognition of shared interests.
When you talk to your partner about the long term, you might discover slight differences in attitudes and goals. Hopefully these won’t be irreconcilable. But arriving at a consensus is essential for retirement planning. If you can’t seem to reach one, you should seriously consider talking to an independent financial adviser right away. Examples of what a couple would need to come to an agreement on are:
- Lifestyle aspirations.
- The importance of leaving a legacy to others (not to each other).
- Attitude to risk.
Uncertain life expectancy means that it’s almost certain that one of the member of a couple will outlive the other. Hard as this is to face, thought needs to be given as to how each would fare (financially and otherwise) if bereaved.
Sometimes a non-retired couple relies heavily on income from one person. You need to consider the impact of losing that income should that person die early. Even if both members of a couple have substantial earnings, their joint lifestyle may depend upon their joint earnings. You should consider protecting some income with life insurance, whilst avoiding over-insurance. Without life insurance it may be necessary to spend less in order to build up bigger savings in case of an early breadwinner’s death.
And don’t forget the kids, if any. They need to be provided for while growing up, of course. But sometimes they can be a drain on finances well into adulthood. The average wealth of people in their twenties has been trending downwards for decades. If you provide support for adult children without having planned for it, your retirement pot will have a hole in it.
Life expectancy of a couple
Say you have a couple where both members have similar life expectancies. Is the joint life expectancy of the couple simply the average of the two individual life expectancies (by joint life expectancy I mean the number of years till the last member dies)? The answer is no: the joint life expectancy is much greater.
For example, a 65 year old man in average health has a life expectancy of 86. This means he has a 50% chance of reaching age 86. But he has a 25% chance of reaching the age of 95. Life expectancy for a woman of average health is a bit longer at 89. She has a 33% chance of reaching 95.
But for a married couple (man and woman) both aged 65, the chances of one of them reaching 95 is 50%. This means 95 is the joint life expectancy. That’s 6 years longer than the woman alone, and 9 years longer than the man. Of course that’s only the average, and half of such couples will live even longer, some much longer. But even if one member of the couple is considerably older than the other, the joint life expectancy is always more than that of the individuals. This nice article explains it well.
We designed our unique retirement planning app for both singles and couples. It’s unique because it uses both Monte Carlo Simulation and optimisation at the same time; you won’t find this in other calculators. You can specify expenses as either joint or specific to an individual. The app caters for life insurance and joint annuities, as well as joint inheritance tax implications. It takes full account of the uncertainties of life expectancy. With EvolveMyRetirement®, once you’ve entered the known information for you and your partner, you can let the system optimise your strategy; you can then view detailed and useful reports and charts.