Planning Your Retirement as a Dual Income Family
In a household with a single income earner, there's one set of decisions to make about how to invest retirement savings, when to retire, along with when and how to tap into retirement income distributions. However, for a dual income family, retirement planning becomes a collaborative project.
Here are four topics that should be a part of the conversation when a two-income couple is discussing retirement plans.
Two incomes bring the potential for a bigger retirement savings, but if you're putting some of that money into IRAs, you should be aware of the rules about how much you can contribute and how it will affect your taxes.
For 2019, the annual IRA contribution limit is $6,000, or $7,000 if you're 50 or older. If you have a Roth IRA, you may encounter additional limitations based on your filing status and income.
You can deduct the full amount of your contributions to a traditional IRA, as long as neither you nor your spouse participates in a workplace retirement plan. If you have a workplace plan and your income is above the threshold, the allowable deduction may be limited. Contributions to Roth IRAs are not tax-deductible.
Multiple Retirement Accounts
If one or both of you has experienced several job changes, you may have multiple retirement accounts between you, from rollover IRAs and 401(k)s to pension plans. Managing these accounts as a dual income family calls for taking a broad view of how that collection of portfolios aligns with your respective retirement goals and risk tolerance.
You may want to consider consolidating some of your retirement accounts to simplify the task of tracking your investments and potentially reducing the fees you pay. However, if you and your spouse own IRAs, they cannot be consolidated while you're both still alive. There also may be other good reasons to keep retirement accounts separate, such as if one offers more investment options, lower fees, or other desirable features that the other doesn't have.
Retirement Income Distributions
If you have more than one 401(k), consolidating into a single IRA can make things easier later on when it's time to start taking your required minimum contributions after age 70 ½. Otherwise, you'll be required to take a separate RMD for each 401(k).
Deciding on your strategy for taking distributions from your retirement accounts is a conversation that becomes more urgent as you get closer to retirement. Should you withdraw from your taxable accounts first so that the tax-deferred accounts can keep growing, or should you avoid larger RMDs in the future by taking money from the tax-deferred accounts right away? Should you convert a traditional IRA into a Roth IRA to postpone the required distributions? A financial planner can help you sort out these questions.
Another big retirement planning decision for a dual income family is when to apply for Social Security. Should you both take Social Security upon reaching the full retirement age, which is 67 for those born in 1960 or later? Or should one of you delay tapping the benefit until age 70, when the maximum benefits apply?
Each of you can either claim benefits on your own earnings or opt to take 50 percent of the benefits for which the other is eligible at full retirement age. If you earn more than your spouse, and they want to use the spousal claim to collect a portion of your benefits, consider filing for the benefits at full retirement but having the payments suspended until you turn 70. That way, the spousal benefit can boost your household income while you wait to collect a higher Social Security payment later.
Make time to talk about your retirement plans and consult with a financial planner to help you achieve the retirement life that makes you both happy.