Let’s work together. The questions to discuss with your partner before you retire

Your relationship so far may have been very successful, but retirement can be a challenge for even the closest of couples. Your lifestyle may be significantly changed, and you will probably be spending a lot more time together. In addition, without a regular monthly salary, you will have new budgets and financial plans to get used to.

This can be more daunting if there is an age gap between you, or if you have different priorities. But by taking time out before you retire to discuss together what you want from your retirement and how you will manage your finances, you should take the stress out of the situation and get a clearer picture of the way forward. You don’t have to be completely on the same page, but this dialogue can help you figure out how to manage the differences as well as how to fund your new lifestyle.

Here’s a few helpful questions for you to consider when you have your retirement conversation.

1) When and how do you want to retire?

Some people want to stop work as soon as they can afford to, whilst others can’t see themselves ever not working. More people are now choosing to retire gradually, continuing to work part-time in their early retirement years, either out of choice or financial necessity.

It doesn’t matter if you have differing views on this, or if an age gap makes retiring together impossible. By discussing your plans and preferences, you should be able to come up with a plan that works for you both.

2) What sort of retirement lifestyle do you want?

You also need to appreciate and understand how each of you want to spend your new-found spare time. Will work still be a feature, whether it’s on a paid or voluntary basis? Are there sports, pastimes or hobbies you would like to indulge in more? Do you want to travel or spend more time with your family?

You may feel you know how your partner will want to utilise their time, and you may simply both want more of the same, but retirement also presents a great opportunity to shake your life up a bit, if that’s what you want.

3) How much financial support should we give our children?

The importance these days of the ‘Bank of Mum and Dad’ has been well documented. And for couples with children, this can be a major bone of contention. In some cases, one of you might be happy to help with house deposits, weddings, and grandchildren, but the other might want the two of you alone to enjoy your savings. The situation can be even more complicated if either, or both of you, has children from a previous relationship.

But even if you’re both on the same page, the money you want to give them will still need to be factored into your financial plans.

Whilst considering your kids, you should also talk about whether it’s important to leave an inheritance as this too could have a big impact on your retirement spending.

4) Should we stay in our existing home?

If it’s just the two of you now living at home, it could be time to consider whether you want to downsize to somewhere smaller. With the home usually your biggest asset, this could free-up additional monies to help make your retirement years more comfortable and/or support your dependants.

Alternatively, you might want to move closer to children and grandchildren, or even consider a complete lifestyle change by moving somewhere different – even abroad.

This can be a difficult conversation if you have conflicting views, but by discussing it fully, it should be easier to arrive at a compromise.

5) What financial worries do you have?

However much you are looking forward to your retirement, you will no doubt have certain financial worries and anxieties.

Running out of money is one of the most common fears. However, you may also be concerned about how your partner may cope if you die first or what happens if either you or your partner’s health deteriorates. Then there’s your children and possibly your parents to think about.

It’s important that you share these worries and discuss through with your partner.

6) How much income will we need?

Having discussed through all these issues, you should have a clearer picture of what your priorities and concerns are and how your joint retirement plans could pan out. This will put you in a much better position to start thinking about money.

Exactly how much you will need will depend on your lifestyle choices and where you plan to live but assuming no major lifestyle changes, aiming for around two-thirds of your pre-retirement income might be a comfortable target. In your calculations, you should also factor in any potential unforeseen costs, such as major house repairs or later life care.

If your calculations suggest your current pensions and investments are adequate to meet your long-term needs, that’s fine. However, this could be the time to consider saving more for retirement, if possible, if you believe you may have a shortfall. Getting financial advice at this point can make sense.

Alternatively, you may wish to start considering a phased retirement or other creative ways to boost your income in retirement.

7) Where will our retirement income come from?

Income in retirement doesn’t only have to come from your pension savings, it can come from several sources.

As well as the state pension and any private pensions you hold, you can also use any monies you have in an individual savings account (ISA) or in a general investment account to help provide retirement income. You might also have property that can help fund your retirement income. Or you may decide to continue to work, either part time or full time.

Depending on your individual circumstances, it could make sense to leave your pensions untouched for as long as you can, as currently, any monies left in pensions when you die can be paid to your dependants, free of inheritance tax (as your pension is not considered part of your estate).

Your pension income will also be taxable, so drawing monies from ISAs first could make sense as this will be tax-free and would help to reduce your tax bill in retirement. Or you could use a combination of pensions and ISAs – taking pension income up to the personal allowance, for example and topping that up with money from your ISA.

8) What should we do with our pensions?

Finally, when you do decide to start taking an income from your pension, you will also need to determine the best way to go about it for you.

Unless you are in a defined benefit pension scheme, you are likely to have a defined contribution pension pot or pots. Most people take the allowed 25% tax-free cash from their pension pots and then consider whether to buy an annuity or opt for drawdown.

With drawdown, you take the cash or income you need from your pension in amounts that you can control. It’s a flexible way of taking as little or as much as you need without disturbing the rest of your pension pot.

Drawdown provides you with the potential for capital growth as well as the flexibility to adjust your income. At any point you can also adjust your investment strategy, to fit any changes to your risk appetite You can also pass on any remaining pension funds to your next of kin or beneficiaries when you die. The downsides are that there is obviously investment risk, and your money could potentially run out.

An annuity is perceived as the ‘traditional pension’, whereby you hand over some or all of your pension pot and, in exchange, you get a regular income for life.

This gives you financial security, as your income would be guaranteed, and you get protection from the volatility of the marketplace. However, your income would be fixed from the outset, so there’s no room for flexibility if your needs change. You also won’t have any funds left to pass on to your dependants.

Trying to establish the best approach for you can be tricky, especially if you have different attitudes to risk. The best option for many is a combination of the two.

The next step

To find out what might be best for you, it can be helpful to get financial advice at this stage. A financial planner can help by taking emotion out of the process and coming up with a retirement income plan that works for each of you.

So, there is much for you and your partner to think about and discuss, as you approach retirement. If you feel that some financial advice would help, please do not hesitate to contact us.

Please note:

This article is for general information only and does not constitute advice.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

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