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Retirement Planning For Dual-Income Households

Julia A. Peloso-Barnes of Morgan Stanley Wealth Advisors.
Julia A. Peloso-Barnes of Morgan Stanley Wealth Advisors. Photo Credit: Contributed

NEW YORK -- The typical American family reflected in iconic television shows of the 1950s and 1960s, in which the husband went off to work each morning and the wife happily played out the role of homemaker, is firmly in the minority.

By 2012, the Bureau of Labor Statistics reported that six in 10 families with children have two working parents. What's more, the majority of Americans feel they need dual incomes in order to reach their financial goals.1

For a major goal like retirement, working couples need to be especially vigilant to coordinate their planning efforts in a way that supports their combined accumulation objectives. As you and your spouse execute your joint retirement strategy, keep some of the following tips in mind.

Retirement Distributions

Couples nearing retirement need to decide the timing of retirement account distributions in light of their income needs, tax situation and market dynamics. Among the issues to consider are:

  • Tapping taxable and tax-deferred accounts. Conventional wisdom suggests that tapping taxable accounts first enables your tax-deferred accounts to continue compounding longer – and potentially growing larger – over time.

However, there are also those who argue that waiting longer to tap tax-deferred accounts could result in larger required minimum distributions.

Converting a traditional IRA to a Roth IRA, allowing you to put off distributions as long as possible and/or receive tax-free income.3 If one or both spouses are covered by a defined contribution (DC) and/or a defined benefit (DB) pension plan, you will typically be given several pay-out options to consider. These may include:

  • A single life or joint life annuity – Typically the distribution method of choice for DB plans, a single life option, pays out a fixed benefit for your lifetime; the joint life option continues paying some portion of the benefit upon death to another party, typically the surviving spouse. DC plans may also offer the option to annuitize, convert all or a portion of the account balance to a guaranteed stream of income for life.
  • A lump-sum payment – Typically an option for both DB and DC plans, in which the full value of the account is paid out upon retirement. It is up to you to then decide whether and how to reinvest the proceeds.

Social Security

You can begin receiving Social Security payments as early as 62, although delaying the election increases the monthly total. Married couples may want to consider first tapping one spouse's benefit and delaying the other one’s until age 70, which maximizes the income and may substantially increase the couple's total Social Security payout over a lifetime. Determining when and how to claim Social Security benefits is a complex matter involving many variables.

Sources:

1 Forbes, "4 Dual-Income Households Tell All: How We Save and Spend," November 4, 2013.

2 If an individual has more than one IRA, the limits apply to the total contributions made in the aggregate to all the Traditional and Roth IRAs an individual owns.

3 A Roth Conversion may not be right for everyone. There are a number of factors taxpayers should consider before converting, including (but not limited to) whether or not the cost of paying taxes today outweighs the benefit of income tax-free Qualified Distributions in the future. A 10% penalty tax will apply on funds converted to a Roth IRA, if those funds are withdrawn before five years have elapsed unless the owner is age 59 ½ or another exception applies. Before converting, taxpayers should consult their tax and legal advisors based on their specific facts and circumstances.

Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets.

If you’d like to learn more, please contact Julia A. Peloso-Barnes , CFP®, CPM®, ADPA®, CPRC®

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

The author(s) are not employees of Morgan Stanley Smith Barney LLC ("Morgan Stanley"). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley.

Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

Alternative investments often are speculative and include a high degree of risk. Investors could lose all or a substantial amount of their investment. Alternative investments are suitable only for eligible, long-term investors who are willing to forgo liquidity and put capital at risk for an indefinite period of time. They may be highly illiquid and can engage in leverage and other speculative practices that may increase the volatility and risk of loss. Alternative Investments typically have higher fees than traditional investments. Investors should carefully review and consider potential risks before investing. Certain of these risks may include but are not limited to:

Loss of all or a substantial portion of the investment due to leveraging, short-selling, or other speculative practices; Lack of liquidity in that there may be no secondary market for a fund; Volatility of returns; Restrictions on transferring interests in a fund;

Potential lack of diversification and resulting higher risk due to concentration of trading authority when a single advisor is utilized; Absence of information regarding valuations and pricing; Complex tax structures and delays in tax reporting; Less regulation and higher fees than mutual funds; and Risks associated with the operations, personnel, and processes of the manager.

As a diversified global financial services firm, Morgan Stanley Wealth Management engages in a broad spectrum of activities including financial advisory services, investment management activities, sponsoring and managing private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange transactions, research publication, and other activities. In the ordinary course of its business, Morgan Stanley Wealth Management therefore engages in activities where Morgan Stanley Wealth Management’s interests may conflict with the interests of its clients, including the private investment funds it manages. Morgan Stanley Wealth Management can give no assurance that conflicts of interest will be resolved in favor of its clients or any such fund.

Morgan Stanley Financial Advisor(s) engaged Daily Voice to feature this article.

Julia A. Peloso-Barnes may only transact business in states where she is registered or excluded or exempted from registration

www.MorganStanleyFA.com/pelosobarnesgroup . Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Julia A. Peloso-Barnes is not registered or excluded or exempt from registration.

© 2015 Morgan Stanley Smith Barney LLC. Member SIPC.

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