Walking back to the office after a sushi lunch, one of my colleagues said she was worried about retirement savings, especially given she and her partner had vastly differing anxiety levels about it. He is a Don't Worry, Be Happy type whereas she admits to being far more concerned. Not just about her future, but about his lax attitude towards retirement plans.
As most of us know, money conflicts can be among the most contentious and enduring in any relationship. A lucky couple saves their money the same way, but in reality most couples are matched as one spender, one saver.
But that doesn't mean you can put retirement savings conversations on the back burner. The more you discuss, plan and hopefully save, the better. Here are some reasons to get talking about retirement savings with your spouse.
Start talking about retirement savings as soon as you can
Ideally, you'll be able to chat openly about retirement planning with your partner before getting married. "Like anything else (before marriage), it's good to know what the other person thinks about something that will affect you both," says Tom Drake, an Edmonton-based financial analyst and head writer of the popular personal finance blog Canadian Finance.
Chances are most couples have talked about what they would like to do in retirement, but many probably don't continue the discussion about what they need to do to achieve their retirement dreams, he says. If you've put it off, Winnipeg tax expert Evelyn Jacks says retirement planning absolutely needs to be part of the conversation "with the first dollar that is invested in a retirement fund."
For the long-married, it can feel like retirement savings should take a backseat to paying for your parents' nursing home costs or your teens' braces. But considering the average lifespan reaches into one's 80s in Canada, you likely won't be working forever.
"A new vision for life after work must be developed," Jacks says. "That establishes each individual's, and then the couple's life goals, which is required before hard dollar facts can be calculated," she says.
Page 1 of 3 - What next steps should you take on the road to saving for retirement? Find the answers on page 2.
This isn't a conversation that has to be boring or painful
I asked Drake, "Does talking about retirement savings have to be a mind-numbing conversation that potentially proposes going without new clothes and toilet paper?" When people think savings, they think deprivation!
First, you will have new clothes. "Once you start saving regularly, you start to adjust to how much money you have. So while you may have less spending money each paycheque, you simply have less wasteful spending," he says.
Second, there are pleasurable aspects to retirement savings planning, like deciding where you want to retire. If a couple can come up with a plan they agree on, then they probably don't need to revisit it very often, Drake says.
It's a good idea to have a conversation maybe once a year to make sure you are both still on track with your goals and discuss any changes, he adds. At the very least, "if you are making automatic contributions to RRSPs every paycheque then you're heading in the right direction," he says.
What if you disagree on how much to save?
"If there is a major difference in spending and saving habits, then settle on how much to save and then set aside an amount for spending," Drake says.
"Once some savings are set aside, then the spending doesn't have to be such a terrible thing. Each spouse can spend their allotted amount without feeling guilty." But finding a compromise is vital. "It's better to agree to save a little bit each month than to disagree and not start saving at all," he explains.
Taking planning further
One hurdle in broaching the retirement savings conversation is that many of us have no idea how long we should be planning for. "Statistically the average retirement in Canada is about 20 years, so in pre-retirement, that knowledge helps to establish a framework for discussion," says Jacks, who is president of The Knowledge Bureau, a financial education institute that offers a course called Tax Efficient Retirement Income Planning.
Page 2 of 3 - Unsure of how to financially plan for retirement as a couple? Learn tips from our experts on page 3.
Understand and respond to each other's needs
"Anticipated needs must first be addressed and defined with precision," she says. "This requires stealth budgeting. Is there enough from existing sources – income, capital or ability to leverage – to fund those needs?" she says.
Then we've all got our wants, like when we want to retire or whether we want to slowly leave the workforce instead of packing our bags for good at age 65. "In fact, today many families are contemplating two retirements, not just one (person's), at different times. This requires an understanding of what income 'layers' will affect the couple's overall economic power in retirement," she says.
Take advantage of couple power
If you watch any amount of television, you've probably noticed commercials about retirement savings tend to feature couples.
"Retirement planning has become very geared towards couples," Drake says. And there are tax advantages in Canada you can benefit from when you tick the Married box on your tax return.
"A spouse with a higher income during his or her career that is expecting a nice pension can contribute to a spousal RRSP in the other's name. This reduces the taxes paid in the year it was contributed and also helps level out the income of the couple in retirement so that they pay less tax then as well," Drake says.
Jacks adds, "Even if a couple has never co-mingled funds before, the tax (return) is a major force to be considered, and this requires joint filing and joint discussion to maximize income splitting opportunities."
OK, we're talking. But we don't know what to do next
"If both partners are unsure of what they should be saving for their retirement needs and wants, then consider a fee-only financial advisor," says Drake.
This advisor can give you an unbiased opinion on your finances and advise what you might need to change to reach their retirement goals, he says. You can also read up on the subject in the Doug Nelson book Master Your Retirement: How to fulfill your dreams with peace of mind (Knowledge Bureau, 2008).
Page 3 of 3 - Learn why it's important to talk about retirement savings with your partner on page 1.