Original post: 5/26/23; Updated post: 8/30/24
Table of contents
Looking back, I was just a kid when I started working just out of college. The first day included a stack of papers to complete: health insurance and retirement choices were lumped together with emergency contact information and dress code forms. I can’t be sure what I selected, and I only remember how unimportant that moment felt.
My wife went through the same thing. She came home and asked what we should contribute, and “I had heard” we should at least contribute enough to take full advantage of the max. So that’s what she did, and I think I did.
We had a baby on the way at the time. What stood before us was frightening and dominating our mind space, and it felt far more important than the pile of paperwork slapped on my desk.
Yet because of the magic of compounding, that singular investment decision has compounding consequences throughout the rest of our lives.
Most of us were deprived of a personal finance education in high school and never fully grasped the gravity of investing early in our lives or making the right investment choices.
We were handed a pile of paperwork that more closely resembled one more inconvenience that comes with the first day of work than a life-changing choice.
If this happened to you, it’s not your fault. Blame lawmakers for failing to equip you with 21st-century survival skills. I am proud I had a heavy hand in that change in a number of states, including my home state of Ohio. But if you’re my age, that news is too late.
Husbands like us are strong believers in personal responsibility, so shifting the blame to others is not something we like to do. It’s just the reality of a world that shifted the responsibility of health care, retirement selections, and a steady paycheck from employers to employees over the past 30 years without preparing us for our new responsibilities.
I wrote this educational article to equip modern husbands and others with unbiased information to make investment decisions for retirement. Think of this post as a playbook you can dive into based on questions specific to your circumstances. You can use the linked table of contents to get answers to common questions about retirement for couples.
What is the difference between financial independence and retirement?
Someone financially independent has accumulated enough wealth and passive income streams to support his desired lifestyle without a job. Financial independence can be achieved at any age, and some people may continue working after achieving it, either because they enjoy their work or want to earn money to support themselves.
On the other hand, retirement occurs when an individual stops working altogether due to age or financial stability. Retirement usually involves a lifestyle change, which might not be for the better.
Dan Buettner, the author of Blue Zones, explored the lifestyles and habits of people living in regions around the world with the highest life expectancy and concentration of centenarians to identify commonalities. Dan found that filling your days basking on the beach is not the recipe for a longer life. Centenarians predominantly eat a plant-based diet, are active regularly, and have strong social connections and a sense of purpose.
Purpose and an active life drive us to live longer, so perhaps it's financial freedom we should seek, not retirement.
What is the FIRE movement?
Financial independence does not have a minimum age requirement. You need enough money saved and invested to cover living expenses without relying on traditional employment, and this can occur at any age.
FIRE (Financial Independence Retire Early) is a lifestyle movement that aims to achieve financial independence and retire early, usually in your 30s or 40s. The movement emphasizes the importance of living frugally, saving aggressively, and investing wisely to accumulate a substantial nest egg to last a lifetime.
Early in 2010, the movement gained popularity through online forums and blogs, with proponents sharing success stories and strategies for financial independence. Typically, the movement advocates a high savings rate, often around 50% or more of income, and investing in low-cost index funds.
Critics will claim that their lifestyles of extreme frugality are not practical. Everyone, however, should consider the strategies they use to achieve financial independence, even if they do not implement them all.
Modern Husbands Podcast
Jackie Cummings Koski
Listen to Modern Husbands Advisory Board Member Jackie Cummings Koski share on the Modern Husbands Podcast how she was able to obtain financial independence at the age of 49.
Jackie is also the author of the book, FIRE For Dummies.
JL Collins
JL’s first book, The Simple Path to Wealth, has sold over 500,000 copies worldwide. JL is widely regarded as the Godfather of the FI movement.
FIRE Movement Calculator
Are you interested in learning how long it would take for you to gain financial independence? If so, you will find this FIRE retirement calculator handy.
Related: FIRE Movement Tips for Couples
How can we balance investing for retirement while living for today?
In a past Modern Husbands Podcast, we hosted Dr. Sonya Lutter, an expert in financial psychology, financial therapy, and financial behavior. She holds degrees in marriage and family therapy and financial planning and is a Certified Financial Planner, and is a professor in practice at Texas Tech University.
During the conversation, she brought up the Happiness Study at Harvard. They've been tracking people for entire lifetimes and then passing that on throughout their generations to track entire generations of families on what brings them happiness.
Dr. Lutter explained that study participants assumed that financial freedom would make them the happiest, but when interviewed late in their lives, they changed their answers.
What matters most, what makes us happiest, are our relationships.
Balancing investing for retirement and living for today can be challenging, but several strategies can help:
Start by creating a budget together or discussing your current budget, which will help you prioritize your spending and ensure that you set aside enough money for your current needs and future retirement.
If you need direction, consider exploring our ten-part series on budgeting [Part one: What is a Money Date?] or our free budgeting course for newsletter recipients.
Put systems into place that automate living your life as desired while investing for your future life. Set up automatic contributions to your retirement accounts, establish savings accounts specific to your goals, and take advantage of autopay features through your checking account.
Said differently, make it harder to spend outside of your budget and easier to stay within your budget.
Related reading: How to save money and invest together
How can we work together to define our retirement goals?
Start with the conversation with your partner with the end in mind: defining the lifestyle you each want to live without work commitments.
Of course the conversation should also include:
Your desired retirement ages
The anticipated cost of health care
Defining whether your money will be or continue to be pooled together
Considerate of life expectancies and health differences
Anticipating major expenses for retirement
The amount of traveling you hope to do
Long term care options and costs
Below are a few conversation starters to help you get started. These example conversation starter cards come with our Money Marriage U Save and U Budget online courses that are gifts to newsletter subscribers.
Read Money and Marriage: How to talk to your wife about money if you are still squeamish about the money talk with your partner. It is full of strategies that can help you.
How much retirement should I have at age 40?
This question depends almost entirely on the lifestyle you and your partner hope to have while retired and how you have approached money as a couple. Some couples choose to separate retirement finances and plan for financial independence, while others believe in coordinating retirement planning.
A safe rule of thumb is drawing 4% from your retirement to live off of. Ideally, your account will earn 4%, meaning your money will never run out, and wealth will be passed down to your family.
Notice that I am not factoring Social Security into this equation. We will dive into that thinking later.
For the sake of simplicity, imagine you and your partner want to live off of $80,000 annually, which means that between the two of you, you will need $2,000,000 to be financially independent.
If you’re like most folks, you’re not on track to have this much saved, not even close.
According to Fidelity, the average 401(k) balance for those ages 40-49 is $93,400; for those ages 30-39, it is $38,400. This is unlikely to be enough.
How much retirement will I have?
Using the FINRA retirement calculator, you can see for yourself the position the average person is in. Assuming an inflation rate of 3.4%, an annual rate of return of 8% (low side of the market average), and that you are 45 years old with a balance of $93,400, you will each need to invest just over $20,000 moving forward each year to retire at the age of 65.
Feel free to plug and play around with your own numbers using the FINRA retirement calculator.
What is the average retirement income for a married couple?
According to the Current Population Survey Annual Social and Economic Supplement for 2022, the average income for U.S. adults aged 65 and older is $75,254 ($150,000+ for a married couple).
This is misleading because of a disproportionate amount of retirement savings skewed at the top. The median income provides better context, which is $47,620 (~$95,000 for married couples).
Why do people wait to invest for retirement?
The lack of financial resources is one of the main reasons people delay investing for retirement. Many people struggle to pay their bills or have significant debt, which leaves hardly any room for retirement savings.
People may delay investing for retirement due to a lack of understanding of how retirement savings and investing work. They may not know where to begin or may feel intimidated by the process.
It is common for people to procrastinate or delay saving for retirement because they believe they have plenty of time. However, the earlier you start saving for retirement, the more time your investments have to grow and compound, which can result in a larger retirement nest egg.
Rather than saving for retirement, many people prioritize spending money on immediate wants or needs rather than saving for the future.
Many people don't have access to employer-sponsored retirement plans, such as 401(k)s and 403(b), or don't know how to set up an individual retirement account (IRA).
As you can see from the illustration to your right, waiting to invest for retirement has compounding consequences.
How much retirement do we need?
A common rule of thumb:
Age 40: 3x your annual salary saved.
Age 50: 6x your annual salary saved
Age 60: 8x your annual salary saved
Age 67: 10x your annual salary saved
How does Social Security work?
As it pertains to collecting retirement benefits
Coordinating retirement plans between couples and social security benefits can be complex. Several factors should be considered, such as survivor and spousal benefits, reduced benefits for early withdrawal, and coordination with retirement plans.
I recommend seeking the advice of a financial professional who can review your circumstances to provide you and your spouse with advice.
Social Security was never meant to be the only source of income for people when they retire. It’s up to you to decide whether you can count on Social Security to exist when we retire in the form it promises.
Consider the current political environment and leadership, and remember that our Social Security benefits are in their hands. And according to the Social Security Administration, beginning in 2033, the fund's reserves will become depleted, and continuing program income will be sufficient to pay 77 percent of scheduled benefits.
Below is an illustration of what the Social Security Administration considers the full retirement age. You can begin receiving benefits as early as age 62, but the benefits will be reduced.
How much do you know?
CNBC covered a Mass Mutual survey of 1,300 who responded to 13 questions about Social Security. 69% of people either failed or barely passed the Social Security quiz below. The answers are at the end of this section.
True or False:
In most cases, if I take benefits before my full retirement age, they will be reduced for early filing.
If I am receiving benefits before my full retirement age and continue to work, my benefits might be reduced based on how much I make.
If I have a spouse, he or she can receive benefits from my record even if he or she has no individual earnings history.
Generally, if I am in a same-sex marriage, there are different eligibility requirements when it comes to Social Security retirement benefits.
If I have a spouse and he or she passes away, I will receive both my full benefit and my deceased spouse’s full benefit.
The money that comes out of my paycheck for Social Security goes into a specific account for me and remains there, earning interest, until I begin to receive Social Security benefits.
If I file for retirement benefits and have dependent children aged 18 or younger, they also may qualify for Social Security benefits.
If I get divorced, I might be able to collect Social Security benefits based on my ex-spouse’s Social Security earnings history.
Under current law, Social Security benefits could be reduced by 20% or more for everyone by 2035.
Under current Social Security law, full retirement age is 65 no matter when you were born.
If I delay taking Social Security benefits past the age of 70, I will continue to get delayed retirement credit increases each year I wait.
Social Security retirement benefits are subject to income tax just like withdrawals from a traditional IRA account.
I must be a U.S. citizen to collect Social Security retirement benefits.
Important Social Security resources
Create your personal my Social Security account today: A free and secure my Social Security account provides personalized tools for everyone, whether you receive benefits or not. You can use your account to request a replacement Social Security card, check the status of an application, estimate future benefits, or manage the benefits you already receive.
Understanding the Benefits: A handout created by the Social Security Administration that addresses the most commonly asked questions.
Deciding when to begin collecting benefits depends on many factors, including how you plan to coordinate with your spouse. Once again, such complexity points to the need for a financial professional.
Answers to the Social Security Quiz:
True (84% answered correctly)
True (77%)
True (72%)
False (69%)
False (65%)
False (60%)
True (56%)
True (56%)
True (55%)
False (53%)
False (49%)
False (38%)
False (29%)
What should I consider when selecting a retirement plan?
Investing for retirement can be a complex and critical task. Here are some key considerations that couples should keep in mind when investing for retirement:
Determine your risk tolerance
How much portfolio balance fluctuation can you stomach without responding emotionally?
Start young
Successful investors focus on maximizing the amount of time they spend in the market, not timing the market. Why? In this case, a picture (or two) can paint a thousand words:
If you’re curious how hard it is to consistently time the market, try your hand at the linked simulation below:
Decide on an investment strategy
Work with a financial professional to choose an investment strategy compatible with your retirement goals and risk tolerance, including a mix of stocks, bonds, mutual funds, and other investment vehicles.
Before you’re sold on mutual funds that can beat the market, consider this:
“Mutual Funds That Consistently Beat the Market? Not One of 2,132: No actively managed stock or bond funds outperformed the market convincingly and regularly over the last five years. Index funds have generally been better.”
So why do some financial professionals still recommend actively managed mutual funds? That is how many earn their living – through fees.
Time horizon
Your time horizon is how far in the future you need to access retirement savings. Generally, longer time horizons may allow for riskier investments, while shorter time horizons may require more conservative investments.
Diversification
Don’t put all of your eggs in one basket. You are able to reduce investment risk by diversifying: investments in stocks, bonds, and even real estate. Investing in the S&P 500 index fund is a diversified investment in its own.
Fees and expenses
Many fees and expenses will consistently gobble up returns that fluctuate from one year to the next. Strive to minimize fees and expenses as much as you can.
Tax implications
Taxes can have a significant impact on investment returns. It is important to understand how investments will be taxed and to develop a strategy that minimizes the impact of taxes.
Bonus resource
What are common employer based retirement options?
401(k) plans
The 401(k) and a Roth 401(k) is a retirement savings plan some employers offer their employees in the United States. It is a defined contribution plan, which means that the amount of money an employee has in their 401(k) account at retirement depends on the amount of contributions made to the account over time and the investment performance of those contributions.
There are two types of 401(k) plans: a traditional 401(k), which is most common, and a Roth 401(k).
Roth 401(k)s are employer-sponsored retirement savings accounts that use after-tax funds. Employees pay income tax immediately on the earnings they deduct from their paychecks and deposit into their accounts, and retirement withdrawals are tax-free.
In contrast, a traditional 401(k) plan is funded with pretax money. Payroll deductions come from the employee's gross income; taxes are only due when the money is withdrawn.
In both cases, earnings grow tax-free.
401(k) plans are regulated by the Internal Revenue Service (IRS) and have contribution limits and other rules that must be followed. The basic employee contribution limit for 2023 is $22,500.
To learn more, consider reviewing the following resources from Investopedia:
403(b) plans
A 403(b) plan and a Roth 403(b) plan is a retirement savings plan for employees of tax-exempt organizations, such as public schools, colleges, universities, hospitals, and nonprofit organizations.
Think of a 403(b) plan and a Roth 403(b) plan as the nonprofit employer option to a 401(k) plan and a Roth 401(k) plan, which is available to employees of for-profit companies.
To learn more, consider reading the Investopedia article: 403(b) Plan: What It Is, How It Works, 2 Main Types.
Are retirement accounts marital property?
Divorce has a number of financial ramifications, and determining what happens to your retirement funds is no exception. Retirement earnings accrued during a marriage generally qualify as marital assets that can be divided in a divorce. A premarital retirement savings account is considered separate property. During a divorce, your state of residency affects how retirement accounts are handled. 401(k)s and IRAs may qualify as community property or equitable distribution depending on where you live.
To learn more, read the CNBC article, How IRAs, 401(k)s and other retirement accounts are divided in a divorce.
How can we protect ourselves from being scammed?
Choose a financial professional who will prioritize your best interest
Seek a financial professional legally bound to put your best interests ahead of their own and offer the services that fit your particular needs.
The fiduciary and suitability standards are two different standards of care that financial professionals are held to when working with clients. The main difference between the two standards is the level of responsibility the financial professional has to act in the best interests of their clients.
The fiduciary standard is a higher standard of care that requires financial professionals to act in the best interests of their clients at all times. They must provide recommendations in the client's best interests, even if it means recommending a less profitable product or service for the financial professional.
The suitability standard, on the other hand, requires financial professionals to provide suitable recommendations for their clients based on their financial needs, goals, and risk tolerance.
When making recommendations, the financial professional must consider the client's financial situation, investment objectives, and other factors. Still, they are not necessarily required to recommend the product or service in the client's best interests.
Find a financial professional
FPA PlannerSearch®: Create Your Financial Future. Set realistic financial goals and put them into action with the help of a CERTIFIED FINANCIAL PLANNER™ professional who is a member of the Financial Planning Association and required to adhere to the fiduciary standard.
Research your professional financial professional
Pay close attention at any fees you are paying and keep them to a minimum
The fees investors can pay make a significant difference in long term investment returns. Here is an example.
As you can see from what has been highlighted above, fees make a significant difference in returns.
Plug and play to see the difference fees can make using your own circumstances using the this financial calculator.
Average financial advisor fees by type
When investing for retirement, there are several types of fees that investors might have to pay. Some common fees include:
Expense Ratios
This is a fee charged by mutual funds and exchange-traded funds (ETFs) to cover the cost of managing the fund. The expense ratio is expressed as a percentage of the fund's assets and is deducted from the fund's returns. The expense ratio includes the fund's management fee, administrative costs, and other expenses.
Sales Loads
This is a commission paid to a financial professional for selling a mutual fund or other investment product. Sales loads can be either front-end loads, which are charged at the time of purchase, or back-end loads, which are charged when the investor sells the investment.
Advisory Fees
This is a fee charged by investment advisors to manage an investor's portfolio. Advisory fees are typically a percentage of the assets under management and can vary depending on the level of service provided.
Transaction Fees
This is a fee charged by brokers or other financial professionals for executing trades on behalf of the investor. Transaction fees can be charged for buying or selling stocks, bonds, mutual funds, or other securities.
Account Fees
This is a fee charged by financial institutions to maintain an investor's account. Account fees can include annual maintenance fees, account transfer fees, or other fees charged by the custodian or broker.
401(k) Fees
This is a fee charged by 401(k) plans to cover the cost of managing the plan. 401(k) fees can include administrative fees, record keeping fees, investment fees, and other expenses.
As you saw from the fee comparison calculations, it is important to be aware of the fees you are being charged.
The CFP board recommends asking these ten questions to your financial professional to understand what you are being charged.
What are your qualifications and credentials?
What services do you offer?
Will you have a fiduciary duty to me?
What is your approach to financial planning?
What types of clients do you typically work with?
Will you be the only advisor working with me?
How will I pay for your services?
How much do you typically charge?
Do others stand to gain from the financial advice you give me?
Have you ever been publicly disciplined for any unlawful or unethical actions in your career?
Where to research your investment professional
Look at the firm's Form ADV (SEC-filed paperwork) to determine what you may be charged. A firm must clearly describe the types of fees it charges for investment advisory services on this form. A firm's investment advisory fees must be specified in Section 5 of its fee schedule.
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