Pinpointing the perfect retirement date for a couple can be complex. This week we look at a lovers contemplating marrying, now that it is legal for same sex couples to marry in Colorado.
The situation
Beth, 57, and Julie, 55, met in a coffee shop in downtown Denver 21 years ago, and after bonding over their love for a great cup of coffee have been together ever since. Beth is an energy analyst making $74,580 per year and Julie manages a nursing home in Aurora, earning $55,400 per year.
The couple plans to stay in Colorado for retirement. Both of their families are out of state, and with their parents aging, they want to incorporate more trips to visit them over the next few years, spending quality time with them while they can.
Beth and Julie own a home together in Denver valued at $300,000 with a remaining balance of $30,000 on their mortgage. They have a car loan of $20,430 and no other outstanding debts.
Beth has $390,178 in her 401(K) and $130,829 in a Roth IRA. She also has a whole life insurance policy that’s worth $20,000 cash value and earning 6 percent. She has paid $20.20 per month into this plan since 1978. Beth’s pension, at age 60, will result in a lump sum payment of $80,612 and $1,041 monthly for her life only.
Her current employer does not allow a non-spouse beneficiary designation on her pension, or offer retiree health benefits for Julie if they are not legally married. Beth has another pension of $400 per month from a previous employer.
Julie has $161,392 in her 401(K) and $163,523 in her Roth IRA. She, too, has a pension plan from a previous employer of $418 per month. They both plan to begin collecting Social Security at age 62. They pulled their projections from and the report shows Beth will receive $1,599.00 per month and Julie will receive $1,479 per month.
The couple is ready to take the leap into retirement and enjoy the next phase of their relationship and all that it has to offer — and hopefully, one day marriage. Beth wrote in to What’s the Plan ask about the pros and cons of marriage versus a civil union for their retirement plan.
The recommendations
Beth and Julie have done a wonderful job of saving and have set themselves up for a successful financial transition into retirement.
The couple can begin retirement and file a married tax return this year if they would like. Our projections show that they can spend approximately $5,400 per month after taxes at Beth’s age 57, and Julie’s age 55, as a married couple. If Beth and Julie decided to work 5 years longer, until they are 62 and 60, then we project that their after-tax spendable income rises to approximately $6,420 per month.
But: Their income could decrease by approximately $350 per month after taxes if they decided to stay single, file taxes individually, and everything else remains the same. Many other benefits would not be available to them as an unmarried couple — survivor’s benefits from Social Security, survivor benefits for Beth’s pension, and retiree’s health-care benefits through Beth’s employer.
But changing their marital status to married could have other financial effects, making them financially responsible for one another’s long-term medical care.
Beth and Julie are currently both on the same homeowners and auto insurance policies. I also recommend they purchase an umbrella liability policy. This is a policy that raises their liability-protection limit to 1 million dollars and covers incidents that the other two policies may not. If someone were to trip on their sidewalk in front of their house, a traditional homeowner’s policy may not cover this and the umbrella policy would then protect them and their assets.
I also highly recommend Beth and Julie visit with an estate planning attorney as they consider the possibility of getting married. There are legal hurdles involved with this step, and an attorney would help them navigate this. In addition, the couple needs to have wills and trusts established in the event something should happen to them. As of now, neither of them would have any legal decision-making power for the other.
This is an exciting time for the couple and I wish them continued love, success and a happy retirement.
Pam Dumonceau has 21 years of experience in the financial planning industry. What’s the Plan is not a substitute for financial planning or dedicated professional advice.
What’s your plan?
Ask Pam what you should do — e-mail whatstheplan@consistentvalues.com to get advice.
Names and identifying information are changed to protect confidentiality, and there is no charge for the advice featured in the column.
Planning tips for LGBT couples
Know local laws
Even though 35 of the 50 U.S. states and Washington, D.C. allow same-sex marriage, LGBT couples still face significant legal hurdles in many areas that could impact their financial well-being. If you’re moving to a state that bans same-sex marriage, make sure you’re financially prepared for the fact that Social Security will not be available for your surviving partner. Inheritance laws also vary from state to state.
Re-check employer policies
Corporate America’s stance on gay rights has changed over the last 15 years, with 91 percent of Fortune 500 companies banning discrimination based on sexual orientation, up from 61 percent in 2002, according to the Human Rights Campaign. For employees of those companies, it means medical coverage, pension and 401(k) inheritance rights are fairly common for same-sex spouses. It’s worth checking your employer’s latest policies.
Get long-term care insurance
Gay couples without children to care for them as they age are likely to need some sort of assisted-living service. Such help is not cheap. A part-time in-home health aide costs around $30,000 a year while a private room at a nursing home could run you as much as $94,000, according to a 2013 survey by John Hancock Life Insurance Co. Those costs are expected to keep rising. Planners recommend long-term care insurance, particularly for people without children.
Double-check documents
Make sure your savings and benefits go to the people you want after you pass away or become disabled. Add your partner to your beneficiary list for your 401(k), life insurance policies and other accounts. If you own property in a state that does not recognize same-sex marriage, speak to a financial adviser and lawyer.
Beef up your savings
Put away at least 10 percent of your income each year, or enough to trigger the max company match in your 401(K) plan.
If you can, get married
This may be a big step emotionally, but you’ll save your spouse a lot of financial pain if you marry sooner rather than later, especially if one of you isn’t in good health. Social Security requires couples to be married for at least one year for a surviving spouse to claim benefits.
Ken Sweet, The Associated Press
