4 Ways Couples Are Shortchanging Their Retirement Savings

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Whether retirement is decades away or if it is knocking on your door, there are some key mistakes that couples sometimes make when planning for their retirement. It's not too late to fix them, and addressing these problems now can potentially stave off issues in the future.

Are you and your spouse making these retirement mistakes?

Relying on One's Spouse's Retirement

One common mistake that couples make is that they only rely on one spouse's income and retirement savings. While you might be able to live comfortably off one spouse's income now, when you are healthy, you have to calculate just how much you and your spouse will both need in retirement. Hopefully you will both be healthy well into your last years, but plan for the "what ifs." Have both partners contribute to separate retirement accounts, if you both are working. If one spouse is self-employed or a freelancer, there are still retirement options for them.

Even if one spouse does not work, they can still contribute to an IRA account. Carol Berger, CFP®, of Berger Wealth Management, says that spousal IRA accounts are available for married couples who file taxes jointly. Berger says, "This allows a contribution to be made for the nonworking spouse and helps his or her retirement nest egg grow. For example, in 2016, a nonworking spouse can contribute up to $5,500 to an IRA in their name ($6,500 if age 50 or older)."

Putting Your Kids First

There is no doubt that you love your children and that it is easy to put their needs above retirement needs. However, don't delay on saving for retirement for your kids' sake. Saving for retirement should always trump saving for college education. Furthermore, retirement savings should not be dipped into to pay for college.

The simple reason is that your children will have access to scholarships, loans, and work to help support them through college. Even if they graduate with a heavy load of debt, they have a long time to pay it off. There are no scholarships for retirement, and I am guessing the last thing you want to do is return to work.

"Time does not favor waiting because you lose the benefits of compounding," says Good Life Wealth Management president, Scott Stratton, CFP®, CFA. "If you put $5,000 into an IRA and earn 8% for 25 years, you'd have $34,242. Invest the same $5,000 10 years before retirement, and you'd only have $10,794. Or to put it another way, if you waited until 10 years before retirement, you'd have to invest $15,860 — instead of $5,000 — to reach $34,242."

Avoiding the Issue

Money is not always the easiest thing to talk about, however, if you avoid the issue, then you will only cause the problem to grow. Sit down with your spouse and talk about your present financial situation. Talk about where you want to be financially in the next year, in five years, and in retirement.

If you both agree that you want to spend your retirement traveling and not tied to credit card debt or a mortgage payment, then you need to put in place the right money habits now.

You should develop realistic action steps that will help you reach your financial goals a year from now, five years from now, and most importantly, in retirement. That means you might have to tighten your budget and pay more toward debt. Having clear financial goals will also help you stand firm as a couple when it is tempting to refinance the house to redo the backyard. (See also: 7 Retirement Planning Steps Late Starters Must Make)

Not Planning for Medical Costs

As discussed briefly above, many couples forget to financially plan for medical costs. It is easy to think, "We won't need that much money in retirement because we won't buy anything or have to care for kids." However, medical expenses can add up quickly, especially in the last years of life. The cost of caretakers, regular doctor's visits, special medications, and even residency at a hospice can drain retirement savings in a matter of a few years.

The worst thing is that many adult children are stuck with the financial burden of their parents' medical costs. Nearly one in 10 people over 40 are considered in the "sandwich generation." This means they are caring for their own children while also caring for aging parents. The Associated Press-NORC Center for Public Affairs Research reports that Medicare doesn't cover the most common types of long-term care and that a nursing home can cost as much as $90,000 per year. If retirement funds don't cover the necessary care for aging parents, their children will either have to foot the bill or try to take care of their parents themselves.

Jody Dietel, Chief Compliance Officer at WageWorks says that there is a retirement tool that is often overlooked. A health savings account (HSA) can help cover medical costs. Dietel says, "It's important to understand that there's a place for both a 401K and an HSA. Establishing an HSA gives you the ability to amass savings to be used exclusively for health care expenses and preventing the need to dip into 401K funds for medical-related costs in retirement."

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