7 Smart Steps to Planning Retirement as a Couple

No one knows what the future holds, but you can boost your odds of a happy retirement by planning ahead. That's especially true if you have the benefit — and potential financial complication — of having a spouse.

Recent research, from Ameriprise Financial, shows that more than three quarters of couples agree that creating a retirement plan is important. Yet barely more than one in four of those unions have actually done so.

You can think of retirement planning as choosing which levers and switches to pull on an airplane so that you land safely at your final destination - that of a stress-free retirement. If you and your copilot interpret those controls differently, due to your disparate salaries, you need to pay close attention to enjoy a smooth and well-coordinated landing.

Here are seven ways to accomplish that.

Focus on communication

The first step to a safe descent into retirement is to practice good communication in the cockpit. A wide income disparity threatens equally wide expectations about what retirement lifestyle is desired and realistic. Open communication can minimize this threat. For example, here are some questions you should both be asking each other:

• Where will you live in retirement? Will you stay in the same home? Downsize? Move closer to family?
• How will you each enter retirement? Will one person stop working first? Which one? Will the retired spouse work part-time, or earn other income on the side?
• How will you handle the inevitable setbacks? What if the higher earner loses their income? What if someone has to retire earlier? What if the value of your investments drops?
• What are your plans for long-term care? Where would you want to live? Who would you want to care for you? What's your family medical and longevity history?

You don't need to have all the answers right away, and it's normal for them to change over time. But you need a consensus to start planning. After all, you can't plan for a destination unless you know roughly what it is.

Get a financial advisor

Earning different incomes complicates retirement planning. That complexity makes it especially valuable to talk with a financial advisor. Such a professional can turn up helpful strategies to set yourself up for success - and flag any big mistakes you're about to make.

A planning pro can also make you more confident about retiring. In fact, couples who work with a financial advisor are about 20% less likely to worry about having enough saved for retirement compared to couples who don't hire a planner, according to a recent Fidelity survey.

Financial advice is available from a range of professionals, and each type has pros, cons and specialties. Not all of those advisors must adhere to what's known as the fiduciary standard. This rule requires financial advisors put their clients' best interests ahead of their own, even if that means recommending strategies that could reduce their own compensation.

Create backup plans

Retirement, like the rest of your life, may not proceed as you planned. An important part of retirement planning, then, is to assess your specific risks and consider ways to adapt as needed.

A key retirement setback for dual-income couples is the loss of an income, and even two of them. It's a surprisingly common calamity. More than half of workers are forced into early retirement before they're ready, according to the Schwartz Center for Economic Policy Analysis.

Failure to plan in advance for an unexpected income loss could derail your retirement plans. One planning tool is to evaluate how some types of insurance can help ensure you don't get knocked off course:

• Life insurance: It's especially important to consider insuring the life of the higher-earning partner. Losing that primary income can devastate the finances of the surviving spouse.

• Disability insurance: Similarly, disability insurance can partially replace some of the higher-earning spouse's income, particularly at a time when medical bills might be rising.

• Long-term care insurance: Some couples conclude that assets - such as accumulated equity in their home - should suffice in the event that one or both of them eventually require long-term care. If that's not the case, though, consider this expensive yet potentially invaluable coverage type.

Favor the plan with the best match

Let's say you currently both enjoy access to workplace retirement plans with matching contributions from your respective employers. And yet, even together, you're unable to contribute enough to both plans to earn the full company match.

In this case, dial back the contributions from the spouse who is earning the lower match to maximize the savings in the plan of the higher-match 401(k). Only after you put in enough to maximize the benefit from the more generous 401(k) should you contribute to the other plan.

Perhaps surprisingly, about one in five couples don't follow this strategy, according to a 2023 paper from the National Bureau of Economic Research. And couples who don't usually lose an extra $757 in contributions a year. Over time, that shortfall really adds up. Errant contributors have an average of $13,807 less in their accounts as they head into retirement.

Try IRAs to save even more

Let's assume you've contributed enough to max out on the employer matches on both of your 401(k)s, and you still want or need to save more. Opening your own IRA is an option worth considering.

An IRA gives you more choice than a 401(k) where and how to save. Plus, this investment vehicle offers a way for couples with very disparate incomes to profitably save for retirement.

For example, a spouse with a very low income might not otherwise be eligible to save in an IRA. But a spousal IRA allows a low earner to open and fund an IRA just like normal, and with a plus. The contribution limit for spousal accounts is based on your combined incomes, as reported on your joint return.

Consider tax impacts in retirement

It's also good to think about how much you'll contribute to your retirement accounts on a pre-tax (that is, traditional) basis, compared to contributions made with after-tax dollars (as with a Roth IRA, for example). When your spouse is earning a different salary from you, this decision can sometimes make a big financial difference.

People like saving in traditional 401(k)s and IRAs, for example, because they can often deduct those contributions from their income and pay less taxes at the end of the year. That's handy, but the minimum distributions (RMDs) required by traditional IRAs also force you to withdraw money - and pay taxes on that income - once you reach a certain age, often 73.

If both you and your spouse's portfolios are held primarily in pre-tax accounts by this point, the sudden income boost triggered by RMDs could bump you into another tax bracket and reduce retirement benefits like Social Security and increase the cost of supplementary Medicare plans. In many cases, it's better to spread out the types of accounts you and your spouse use, or how you start drawing down your assets in retirement.

Choosing which accounts to use, how much to save in them and what investments to pick can all affect how much you pay in taxes both now and in retirement. All these are good reasons to plan your retirement taxes with care, perhaps with the help of a financial advisor.

The time and possible cost of such planning is usually worth it, according to a 2022 Schwab analysis. It found that a typical 65-year-old couple with a million dollars saved for retirement will end up with $112,569 less by the time they reach age 95 if they don't plan their tax obligations strategically. Gaining that sum, on the other hand, will allow them to get up to three additional years of income from their portfolio.

Make smart Social Security choices

Finally, it's worth thinking about when each spouse should claim Social Security. If the higher earner among you can delay claiming Social Security for as long as possible, they could set themselves and their spouse up for a higher monthly benefit for the rest of their lives.

That's because your Social Security payment is based not only on the size of your working income, but on when you begin to claim the benefit. Not only will the higher-earning spouse receive larger Social Security payments regardless of when they start drawing them, but they'll get a bigger benefit the longer they wait to receive it.

For example, delaying Social Security payments until age 70, rather than drawing them at 66, earns the recipient at least 24% more in benefits, and for life. And when you die, that boost can translate later into more money for your spouse, too, in the form of Social Security survivor's benefits.