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Retirement Planning: Separate Retirements February 17, 2009

Posted by retirementwithaplan in retirement.
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I headed down to the kitchen to make lunch and found my wife watching HGTV. I’ll admit that I get hooked on some of the shows that feature how much house you can buy in some city we hadn’t dreamed of moving to and avoid those fixer-upper, DIY kind of programs. But one thing always strikes me about how couples act on camera when envisioning what to do with a room. Television, flat screen and big, seems to be the single-minded mission of almost every man while the women look for serene and relaxing rooms to read and think and look out the window at the view. This divide, unfortunately, is incredibly telling and more so when you consider that this rift in thought and desire is done while they jumble a potential $300-500k purchase.

I have written over the years about the difference in how women and men think about investing, in books and blogs and on the website I have managed for over a decade. Most of those studies were funded by brokerage houses looking to get an edge, or even better, hone their sales pitch to each group. 021709_cp_l_un_hpyMany of the opinions expressed by women reveal an emotional but rational approach to how their invested dollars are allocated while men take the more winner-take-all approach, willing to assume more risk than is responsible and, in many instances, paying the price for their bravado.

But how should they approach retirement? Does it need to be done separately? Do couples, who may have different shopping habits, spending patterns and dispositions toward investments throughout their marriage or partnership need to plan for retirement together? Absolutely.

In Alan Auerbach’s 1997 book “Fiscal Policy”, the question of savings and how it relates to retirement savings is discussed. (It should be noted that I go to great lengths in trying to separate the words savings and investing, hoping that you change the way you look at your retirement plans as an investment, a risk that your dollars will appreciate over time with the fortunes of the stock or bond markets, rather than savings, a method to safely store money for future needs or emergencies. The two are distinctly different in application and substance.)

Looking at economic research such the kind Mr. Auerbach cites – he believes that there is a reduction in savings and consumption when there is an increase in retirement fund allocation. The two seem to move in opposite directions but seldom, if ever do we look at one as being wholly different than the other. How many people have heard their cohorts lamenting over the demise of their “retirement savings”? When in fact, had they had their retirement money stuffed in a savings account, they would not be lamenting at all!

But they would have missed some opportunities that those who had “invested” received. Even if you lost a great deal in the recent stock market downfall, the number of shares you owned in your mutual fund accounts, the most common type of investment in a 401(k) or IRA remains the same and, if your fund managers have learned what went wrong, they may take those shares and reverse your fortunes. Savings will not provide you with that possibility. And in many instances, will leave you unable to fully fund the retirement you (still can) desire.

So how should couples approach the dilemma of savings verses investment, when clearly one looks to have been a much better place for your hard-earned money than the other? According to Maximiliane E. Szinovacz of the Eastern Virginia Medical School and Stanley Deviney University of Maryland Eastern Shore authors of Marital Characteristics and Retirement Decisions, “Husbands adjust their retirement in terms of wives’ benefit eligibility, whereas wives’ retirement is contingent on the couple’s income. Husbands also tend to leave the labor force when their wives are ill. In addition, retirement decisions seem to reflect considerations about postretirement marital quality and husband’s status in the marriage. Gender differences prevail with regard to the impact of work and marital history on retirement decisions.”

But the differences don’t end there. Age difference between spouses often turns the conversation into anticipation of one or the other working beyond the other spouse’s retirement. And while that is not really part of this discussion (stayed tuned for a later post on the topic), how each person sees retirement as they close in on a certain age changes a person and often a couples emotional disposition. That change in disposition, particularly towards finances can have huge effects on how your retirement years will be funded.

The best plan for these types of staggered retirement ages and for those that coincide with one another, is how you should look at not only your strategy but how it will impact the two of you. If women tend to be more measured in their approach to how much risk they assume, the man cannot take a much riskier approach and think of it as diversity.

In general, aligning your investment goals for your retirement plan should be the source of a long discussion. If you have found that over the years, as your retirement gets closer you have both assumed a “given-ness” that you will retire and you will do so with enough money, then a conversation is absolutely needed. You may find that strategies that worked in the past are not necessarily good for your future as a couple.

The next post I will do will concern the ways to manage a staggered retirement, when two people approach retirement at different times, but before I do, I want to suggest a few things you should consider.

1. The markets have been cruel but if you invest wisely (not conservatively) and do so as a couple, you should attempt to avoid overlapping investment risks. The inside working of most 401(k) funds resemble one another. For example, both of you in an S&P 500 index is not spreading your exposure.

2. Begin to think of what you are investing as one account held at two different places. The performance of a spouse’s account, even if it is funded at a lesser percentage or offers a greater (or lesser) match, should be strategized between the two of you as one “total” retirement plan, the parts making up the sum.

3. If one spouse is able to retire before the other, don’t take advantage of the situation. Consider using the time gap to do repairs or remodels on the place you plan on spending your golden years. And for goodness sakes, learn to cook a dinner once in awhile.



1. Retirement Planning: One Retirement before Another « Retirement with a Plan - February 20, 2009

[…] retirement plans, savings, social security trackback I mentioned in the previous blog entry on this subject of retirement planning that should not be separated and one that concerned itself with the The Perfectly Engineered […]

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