One income, two retirements: How couples can protect their future

For a lot of people, a one-size-fits-all retirement plan just doesn’t fit. Their family circumstances call for a more custom-made approach. That’s the case with couples who have one income. Christine Benz and Valentina Djeljosevic recently discussed the retirement planning needs of these couples , including emergency funding and Social Security filing decisions.

Valentina Djeljosevic: For couples who get to make this choice, to forgo having two earners, I’m sure they’re wondering, “Can we make it on one income?” But what might they be missing?

Christine Benz: They’re usually focused mainly on the household budget in the here and now, but I would recommend peering a bit into the future if you possibly can, and think about a couple of things. Take a look at how you are doing with respect to retirement funding, and how you will be able to contribute to your retirement fund on that single income. Also think about if the spouse who is going to step out of the workforce, if he or she wants to get back in later, that can sometimes be a challenge. Maybe they keep working part-time or on a contract basis to keep their skills fresh.

Djeljosevic: How can these families make sure they don’t fall behind when it comes to retirement planning?

Benz: Make sure that you are continuing to fund the retirement plans at a very minimum, that you’re at least meeting any matching contributions in the 401(k) plan that are coming in through the employer. If you can make additional contributions and/or continue to fund IRAs, that’s even better. Another lever is that you can fund an IRA for the nonearning spouse, as long as the earning partner has enough earned income to cover it. That’s a really nice way for couples to continue to have retirement assets compound.

And then I also love the idea of using reverse budgeting in your household where you’re setting your savings targets, and then you are able to spend anything that’s left over. I think that’s a wonderful strategy for people with tight household budgets, as is often the case for people living on a single income.

Djeljosevic: I imagine that emergency funding has to be part of their planning. Why is it especially important for people who are on a single income?

Benz: If all of your family’s financial fortunes are riding on that one earner, you are more financially fragile. Think about setting aside a year’s worth of anticipated spending in liquid reserves. And then also look to what might be your next-line reserves, if you had exhausted that dedicated emergency fund but still needed to find cash flow somewhere.

So, if you have permanent life insurance, that often has a cash value attached to it. If you have a home and you have home equity built up, it might be worth lining up a home equity line of credit.

Djeljosevic: What are some of those sources of liquid reserves?

Benz: Look at money market funds, anything that you could readily tap into. You don’t want it inside of your retirement accounts, where you’ll typically pay taxes and penalties if you need to crack into those accounts before retirement age. So, you need funds in a taxable brokerage account. The good news is that yields are up appreciably versus where they were a couple of years ago. The bad news is taxes; you’re taxed at ordinary income tax rates on the income from those liquid reserves. So, it’s going to take a bite out of the interest that you’re able to earn.

Djeljosevic: Can you talk about Social Security filing decisions for these single-income households?

Benz: The name of the game is to enlarge your benefits over both partners’ lifetimes. A common configuration for single-earner couples is that the main earner in the household is also a bit older. And it can often be advantageous for that partner to delay the filing date in order to enlarge the eventual benefit if you predecease your spouse, that the benefit that he or she takes on after your death will be larger. If you’re not conversant in the ins and outs of Social Security, get some help, but definitely approach your filing decisions as a couple.

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This edited conversation was provided to The Associated Press by Morningstar . For more retirement content, go to https://www.morningstar.com/retirement .

Christine Benz is director of  personal finance and retirement planning for Morningstar and co-host of The Long View podcast . Subscribe to her free newsletter, Improving Your Finances . Valentina Djeljosevic is senior editor of content development for Morningstar.

Related Links:

Retirement Planning for Real Life, With Christine Benz

https://www.morningstar.com/retirement/retirement-planning-real-life-with-christine-benz

​​Retirement Planning for Parents Raising a Child With a Disability

https://www.morningstar.com/retirement/retirement-planning-parents-raising-child-with-disability

How Late Starters Can Find Financial Independence

https://www.morningstar.com/podcasts/the-long-view/bill-yount-how-late-starters-can-find-financial-independence