Newlyweds, regardless of their ages, should be careful not to neglect retirement planning, even if retirement itself seems far off, in their newly merged (financial) lives. With several relatively simple steps and considerations, it is easy to channel your newlywed bliss into a blissful retirement, no matter if it's four years away or 40.
First, carefully review your budget, expenses and current retirement accounts. Then, together, determine how much you can afford, as a couple, to stow away each pay period.
Next, it’s important to review the plans available to you. If either spouse has access to a 401(k) plan, contributing as much as affordable up to the employer’s matching percentage (taking advantage of free money!) is first priority.
After that, consider maxing out your contributions using Roth IRAs. Unlike 401(k)s, contributions to Roth IRAs are not tax deductible; however, all future growth is tax free. When you begin cashing out in retirement, the tax on that money is already paid. By paying tax on the seed today, you allow the whole crop to grow tax free.
Furthermore, both a Roth IRA and a traditional IRA—like a 401(k), contributions are tax free now with taxed withdrawals later—offer greater investment flexibility than a 401(k). With either IRA, you and your spouse have access to a full universe of investment options as opposed to the limited selection offered through the employer-sponsored plan.
It is important to note that there are qualifications that must be met in order to fund a Roth IRA. First, you can only contribute income earned from a job where as individuals making more than the upper income limits are not eligible. If that happens to be the case, look into funding a variable life insurance policy that can provide multiple benefits including wealth replacement and protection against untimely death. Such a policy also provides for the ability to invest in the stock market and save for retirement. The accumulated cash value, if needed, can be accessed in retirement years, tax free, through a net-zero cost loan. Any outstanding loan balance will reduce the death benefit payable to beneficiaries, but most importantly, if you need the money, it’s available. Otherwise that money will transfer to your beneficiaries, also tax free.
Any sound retirement plan should also include disability and long-term care insurance. For younger newlyweds, the latter could be premature, but a life insurance policy with a long-term care rider might give you or your spouse the type of financial security worth considering.
While perhaps not as exciting as the engagement or wedding plans, retirement planning should be a key focus for any newly married couple embarking on a life together. Contribute to a tax deferred 401(k) account and take advantage of the match (free money) your employer is offering. For any additional money you can afford to save, think "tax free" with a Roth IRA and/or specially designed life insurance products. Foregoing a small tax deduction today can result in huge tax savings tomorrow.
Paul Burkemper is president of the St. Louis, MO-based financial planning firm Burkemper Group. Securities and advisory services offered through VSR Financial Services, Inc. A registered investment adviser and member FINRA/SIPC. Burkemper Group is independent of VSR.