5 Mistakes Couples Make to Screw Up Retirement

Welcome to another edition of Mr. Stillman's Opus, the podcast that tells you all about what you need to know in the financial realm. Walter Storholdt here alongside Jon Stillman. What's up, Jon?

How you doing, partner? Good to have you here today, although I guess it's really you're here on every podcast, so you should be really saying good to have me here. That's a good point. I didn't follow that way.

Because I'm the one that drops in from time to time. Right. Welcome. Welcome to the podcast. There you go. On today's podcast, we're going to be talking about the five ways, and this is not an exhaustive list, but the top five ways.

But you'll be exhausted by the time I'm done. Probably. The five ways couples, and we're not sugarcoating this, screw up retirement. Why are we talking about it? Well, because couples often screw up their retirement by not being on the same page, making some critical mistakes. Sure.

By the way, I should preface this. By saying, if you're single, you have some issues that you need to think about, but it's a different set of problems than what couples often deal with. So neither one is more or less challenging than the other. Retiring is a single person versus retiring is a couple.

I don't know. Actually, I might say that retiring is a single person in a lot of ways is easier, but there are disadvantages to in any event. We're talking about couples today. Some of the principles will still apply to single.

Sure. So reason number one, that couples screw up retirement is to not be on the same page. It's just not talking about what they want to do, what they want retirement to look like, where they want to travel, not talking about how they're investing, how they feel about wealth, what sort of legacy they want to leave. So many times people have come into the office and they've just never talked about any of this.

It's clear that the first conversation they're having about any of this stuff related to money is right there in front of me in the office. They wanted to do for, you know, what kind of fun money did we need to factor in their retirement plan? And his answer was, well, we're going to get an RV. This has been our dream for years. We want to get an RV and see the country, hit a few baseball stadiums, you know, 10 or 12 baseball stadiums around the country.

A couple of college football stadiums that they'd really like to go to. And the whole time he's talking, his wife is just looking at him like, what planet are you talking about this? So he gets done. He's like, so that's our retirement dream. And she said, that's not my retirement.

But they just never talked about it. And he assumed that, you know, he'd probably mentioned it at some point, you know, it'd be fun to have an RV and drive around the country and hit a lot of different ballparks. And she's probably, yeah, that'd be cool. Sure, honey.

Yeah, let's do it. That was 15 years ago, and she'd forgotten this conversation ever existed. And so we see that a lot. Just have some conversations about what you want to do in retirement, how you're going to spend your time. A lot of couples are not on the same page in terms of travel, where they want to go. For instance, maybe the husband has traveled a lot for work.

The wife hasn't or vice versa. And, you know, one of them has traveled a lot and they're traveled out. The other person wants to see the world. So just have these discussions because obviously the financial piece is going to be dictated by what you want the lifestyle to look like. So we need to figure out what that needs to be. It's like any marriage where or any other aspect of marriage where communication.

It's going to be extremely important. And when it comes to the finances, as you've learned, as you've accumulated wealth and kind of, you know, lived week to week or month to month or, you know, maybe there was time when you were first married, you were living paycheck to paycheck. You know, it's figuring out the finances together. Now we're just talking about even the stylistic or lifestyle type things.

Right. And another example would be the house. What house are you going to live?

So again, this was a couple of years ago, but it's one that comes to mind. One of the things that we always discuss is, are you going to stay in the house that you're currently in? Is that the house you're going to die in or are you likely to downsize at some point or move or go to a different part of the country or what? Well, this couple, they'd been living in a, I think, a six hundred thousand dollar house for five or six years. They were in their early fifties. And so we were asking, OK, is that where you envision yourself staying? And, you know, they were talking about some of the challenges. It was a bigger house than they'd had.

But, you know, totally worth it. They loved the yard, loved the neighborhood. They loved the house. And he said, it's really our dream house. And yes, it's probably more expensive than what we really should have, but we're willing to sacrifice on other lifestyle a little bit because it's our dream house.

And his wife said, he doesn't have to clean it. It's not her dream house. OK, so she wants to move.

She was ready to downsize. But again, they just never had that conversation. Wow.

All right. So that's the first way couples screw up retirement, that lack of communication, lack of being on the same page when it comes to the lifestyle of retirement. And sometimes it does come back to the to the actual financial elements, doesn't it, John?

Yep. In fact, we'll say problem number two with couples and their financial planning is pension spousal benefits, making the wrong choice on that, either not taking enough of a spousal benefit or not taking any spousal benefit or maybe taking a spousal benefit when you shouldn't. A couple of examples have a client who's been in the military, very substantial military pension. I think he was in the army for twenty five years. So he was getting close to 10 grand a month from the army, from the federal government. But he retired at, you know, mid fifties, I guess, fifty five. And he's getting ten thousand a month for the rest of his life.

He took no spousal benefit at all. So pretty big income gap when he passes away that we're going to have to fill for his wife because she's going to lose Social Security and his ten thousand dollar a month pension. Well, now let's compound the problem with the fact that she's nine years younger than him. So she's going to be living for probably a lot longer.

Twelve plus years, statistically, is how long she's going to outlive him by. And so that's more than a decade of ten grand a month that we've got to make up somewhere. Now, fortunately, they have the assets to do it.

And, you know, it's a combination of, you know, using their assets properly. And also, I think some life insurance in his case was how we were going to fill the gap. But that's one of those things if he had it to do over again, he would take some spousal benefit, a little less income. He wouldn't have ten grand. He might get eighty five hundred a month. OK, I was going to say, illustrate that for us, what that difference would look like in an average situation. Yeah. So let's say maybe he gets eighty five hundred a month, but then she gets fifty percent of it when he passes away.

Gotcha. How many different ways can they structure those pension, those withdrawals and those options? You know, it's going to depend on your company. In a lot of cases, you might have five or six different options. So you could do like, you know, the spouse gets half as much or a quarter as much or nothing at all. Or a spouse keeps the full pension. Or if your spouse dies first, you actually get a bump up.

You can take those options. So there's a lot of different ways to structure it. But again, we have to look at it within the entirety of the income plan and be sure the pension fits in with the other pieces.

And when do those decisions get locked in for most people? Well, that's the trouble with it. Once you make the election, you can't change it. You can't go back after a year or two and say, oh, you know what, let me pay you back some money and let me have a spousal benefit instead. No, it doesn't work that way. So it's like Social Security.

Once you pick a path, that's your path. Interesting that you brought up Social Security, because that's problem number three. Numero tres. Look at that segue you just made. I didn't even realize it. Yeah. Not coordinating your Social Security claiming strategy is another way that couples screw up retirement planning.

And again, this is just something you need to talk about. A lot of people make the knee jerk reaction of, all right, I'm 62, I can get some money out of the system. Pay me, baby.

Let's do it. And they turn that check on when in reality, that's often not the best way to go. Some people say, look, we're going to put it off until 70.

We'll draw down on all of our other assets and then we can take our maximum benefit at age 70. Also, not necessarily the right choice. So you have each of these competing elements and then you have one spouse maybe taking it early and another spouse takes it late and maybe they should have done it the other way.

If you'll sit down and coordinate, again, not just your Social Security claiming strategy with each other, but also, again, within the totality of your income plan. We can't just look at these things in a silo by themselves. Right. We have to make sure all the pieces fit together.

And until you've looked at the big picture, how are you going to do that? So that's a problem. So you've got pension, Social Security. We talked about being on the same page when it comes to just the general conversation of retirement. That's three of the five ways couples screw up their retirement.

What's number four? This would be couples who don't appropriately coordinate all of their accounts together and take into account what they each have. Okay. So more of an individual planning strategy?

Yeah. And I see this a lot in second marriages where maybe they still have their own individual bank accounts, which I see a lot in second marriages. You get burnt once and often it takes a while to trust the second time around. And so very often in second marriages, you keep your finances separate. But I see so many people who in their second marriage, they're not coordinating all of their assets. And it's just, all right, well, he pays these bills and she pays these bills and we each have our own money coming in.

And as long as we each have money coming in, we can each pay these bills. Well, the problem is what happens when one spouse dies? It's really hard to know if the other spouse is going to be on good financial footing when we lose the other spouse, because more likely than not, the bills that he was paying. Some of those bills are still going to exist once he dies. It's not just like his Moose Lodge dues and, you know, stuff like that that's going to go away when he dies. Usually it's like she buys the food, he makes the house payment, something like that. Well, you lose one spouse, the bill still exists for the other person. Right. And so so many times people want to look at just their accounts and say, well, I just want to know that I'm going to be okay regardless of any of his money.

Well, that's fine. And that's a perfectly good way to look at it. But we have to understand what kind of liability do we have? What if he has planned so poorly that he runs out of money and you're both still alive, but you have to now pay all the bills?

Or what if he dies and, you know, we still have a lot of liabilities to take care of, but he hasn't left much money behind? So it just works so much better if you'll at least have a conversation to coordinate your different accounts. Well, at the beginning of the podcast, you were talking about the differences between singles and couples planning. And you said singles are often one of the easiest. You know, in most cases, they're going to be easier to plan with. I would imagine you're striking right there, though, one of the ways that it's easier for a couple to plan, because with the power of two, you can be a little bit more crafty. You can you know, one can help the other. That's where it kind of you're able to use those moving pieces a little better.

Sure. So theoretically, you have twice as much money to work with. You have two Social Security payments, but your bills aren't usually twice as high as a single person, right? Your housing costs are roughly similar. Sure, your food bill might be twice as high. The cable bill is the same and all that kind of stuff.

You got a lot of stuff that's pretty similar. So in a lot of cases, it is easier with the couple. But on the other hand, for a single person, we don't have to worry as much about long term care. Let's say if you have some long term care coverage, that's good. And then you go into a nursing home, you have all of your income and all your house can be sold at that point. We're not selling the house out from under your spouse. So the health care planning is easier for a single person very often.

Again, lots of crossover simplicity versus some complexity between the two scenarios. All right, five ways couples screw up retirement. We've gone through four.

What's the last one? Last one is not managing risk in a way that both couples are comfortable with. So very often, and I see this a lot with engineer type clients, especially dudes who are engineers, very focused on the details. They have their plan of how they want to do it, and they've had their spreadsheet for years and their target rates of return that they're trying to get over the course of the years and all that. And they've invested that way for years. And, you know, they might have a lot of volatility in their portfolio because they're seeing the 20 year, 30 year picture and they're trying to get from point A to point B. They understand the big picture and then maybe their husband or their wife doesn't see it the same way. And they just want to know that things are going to be OK. All they care about is can we pay the bills if we both live until we're 90 or if you die at 75 and I live until 90, am I going to be taken care of? And at the end of the day, that's all they care about. And so you have this clash of philosophies of I want absolute best return on my money over the course of the next 30 years of my retirement.

And that's competing with I just want to know that we're taken care of. And so sometimes you have to have some very frank conversations with couples. And in some cases, in one case I can think of, I had to pretty bluntly say to a guy, look, is it OK if we take a little bit less risk with her money and her 401K, then you're taking with yours?

Mathematically, we can make it work either way. But the fact that she has all this volatility in her 401K, because that's how you've told her to allocate it, is driving her crazy. Is it OK with you if we take a little bit less risk with that money than you would prefer to take?

And when he looked at it that way, he was actually fine with it. It's your classic marriage compromise, right? And so very often spouses are on different wavelengths when it comes to risk. And if you're just going with one person's risk tolerance or the other, the other person is going to be uncomfortable. Let's say the husband wants to take more risk and wife wants to be really safe. Well, if they go really safe and conservative with everything, it's going to drive him crazy because he's not getting the return that he wants every year over the course of time. And if he's too focused on return over the course of time and she wants more safety, it's driving her crazy to see those account balances go up and down. And so, again, it's just something we have to get on the same page and have these conversations, figure out who wants what emotionally, and then figure out, all right, let's just suppose we can make it work mathematically either way. If that's the case, let's find the thing that fits both of you emotionally as best as we can. Very cool.

Well, there you have it, the five ways that couples often screw up retirement and some of the ways you can avoid those things. Great conversation. Thanks, John.

Yes, sir. Appreciate it as always. Thanks for being here. Yeah, thank you. I appreciate being your guest and host today. This has been another edition of Mr. Stillman's Opus. We'll talk to you again next time.