Whether considering marriage, newly wed or in a long-term committed relationship, most couples recognize that communication and shared goals are key to happiness and harmony. Many couples spend time discussing lifestyle goals, such as where to live and work; whether to have children and if so, how many; where to vacation or spend holidays; and more.
More difficult and often not discussed are money and financial goals. And it’s not just about how much you spend. Sharing financial goals and planning is critical to achieving financial security and peace of mind, especially as clients approach retirement. Being in tune on finances also might make for a stronger relationship. A 2014 survey by Money magazine, Love + Money, revealed that arguments over money were the leading source of conflict among wives and husbands.
Although many couples believe they are highly skilled in communicating with each other, it’s not always the case when it comes to investing and planning for retirement.
The Fidelity Investments® 2015 Couples Retirement Study revealed a disconnect among couples in such basics as knowing how much their spouse earns and the amount of their total assets. The study, conducted every two years since 2007, tests communication as well as financial knowledge. The 2015 study expanded on prior studies by including Gen X and Gen Y couples and non-married couples in long-term relationships, in addition to married couples aged 47 and over. The online survey included couples with minimum household incomes of $75,000 and minimum investable assets of $100,000.
Among the findings:
- Salary: Forty-three percent could not correctly identify how much their partner makes—and among those, 10 percent were off by $25,000 or more.
- Assets: Thirty-six percent disagreed on the amount of their household's investable assets.
- How much to save: When asked how much they will need to maintain their current lifestyle in retirement, 48 percent had "no idea" and 47 percent disagreed about the amount needed. The level of disagreement was highest among baby boomers, those who are in or closest to retirement.
- Social Security: Sixty percent of couples overall and 49 percent of baby boomers have no idea how much their Social Security benefit might be, even though the information is readily available at www.ssa.gov.
- Retirement lifestyle: Couples aren't on the same page when describing their expected lifestyle in retirement—with one in three disagreeing about how comfortable that lifestyle will be.
Aligning Goals
Here are some guidelines to help your clients refine their planning, especially as they approach retirement:
Start the conversation. Talk about the big picture so you can assess whether they both want the same things and how they might be able to adjust if they don’t. This first step is absolutely critical: They have to define their dreams, discuss priorities and set the table. Some advisors suggest couples write a wealth mission statement together, putting into words how they would like to manage their wealth over time.
Ask questions to identify differences or concerns. Each spouse should list questions or concerns, then discuss them together. For example, one spouse might be a saver and the other a spender; one might be more concerned about debt than the other. Even if both spouses are savers, their priorities might vary significantly. This exercise also can reveal areas of worry that either spouse or both spouses were not aware of and will be helpful as you design or adjust your financial plan.
Determine your respective risk tolerances. Financial advisors commonly talk with clients to assess their tolerance for risk. Some couples may want to have each spouse meet individually with the advisor so they can conduct separate risk assessments. The advisor then can get a true feel for each individual’s comfort level without influence from a spouse. Surveys often reveal significant gender differences in risk tolerance, with men generally less risk-averse than women. For example, the Fidelity Investments® 2013 Couples Retirement Study revealed that women tend to have lower risk tolerance than men. When asked whether they would be willing to invest a significant amount of money to achieve higher returns if they could lose some or all of their initial investment, only 4 percent of women were willing to take that risk, compared to 15 percent of men.
Identify important goals and priorities. How long do each of your clients plan to work? What type of lifestyle in retirement appeals to them? Do they want to keep their primary home or downsize? Will they stay put or move to a new city? Will they fund their children’s education, and if so, will that extend through graduate school? Do they have philanthropic intentions? Establishing mutual goals will make your planning smoother, especially if the economy experiences a downturn and they need to adjust. Listen carefully and pay attention to detail. Perhaps one spouse plans to retire early and the other wishes to keep working, which can lead to resentment if they are not in agreement. One spouse may wish to buy a vacation home and the other may prefer to downsize and travel in retirement.
Two portfolios but one couple. It’s very likely that each spouse will have their own 401(k) plan, making it critical to coordinate asset allocation across those separate accounts. As they leave work and proceed through retirement, they might want to consider consolidating accounts where possible and simplifying their finances. Simplifying their portfolio also will make it easier if one spouse is or becomes unable to participate in planning.
Understand the options. Each spouse should have a thorough understanding of their options concerning retirement income and benefits with an eye on what is best for the couple. For example, post-retirement health care benefits will have a significant impact on monthly and annual costs, as will options within any pension plan, military or other employer-sponsored defined benefit plans available to either spouse. When to claim Social Security benefits is a major decision, but claiming strategies for married couples can be complicated. Although most individuals can claim Social Security benefits at age 62, they can increase their eventual monthly benefit by as much as 8 percent per year by deferring until they are older. Once they have evaluated all of the choices available to you in benefits and income, they can determine the best course for your mutual situation.
Test the plan. Give serious thought to unexpected occurrences and worst-case scenarios to help determine whether your clients have the financial means to cope and still maintain their desired lifestyle. For example, consider whether they are prepared to handle a serious illness, unexpected medical bills, the death of a spouse, or moving out of their home because of a natural disaster or because they need assisted living or nursing care.
Consider future care needs. Couples should consider their potential need for long-term care and each spouse’s wishes in the event they need such care. Statistics from the U.S. Department of Health and Human Services (HHS) show 8 percent of individuals ages 40 to 50 have a disability that could require long-term care and 70 percent of those turning age 65 will need long-term care at some point. Couples should plan for costs and logistics if one or both spouses become unable to live safely and comfortably in their home. Options include in-home care from a family member or professional caregiver, or moving to assisted living or a nursing home. When planning how to cover costs, consider whether a spouse is eligible for military or employer benefits in addition to using private funds or buying long-term care insurance.
Plan the estate. Once your clients have thoroughly discussed their financial situation and taken steps to align their priorities and goals, they should create an estate plan if they haven’t already. Having a plan in place helps ensure their finances will be in order for their family and future generations. Having an estate plan can also allow your clients to avoid probate court and make provisions to care for and protect children and other beneficiaries.
Keep each other informed. While one person is likely to handle the paperwork and make changes, your clients should make time to review accounts, asset allocations and results together. Many couples do this quarterly but some may do it annually. Consider changes that might be needed going forward to meet their shared goals. The person who manages paperwork needs to make sure their partner has access to critical information, such as account numbers, passwords and where account information is stored.
Most would agree open and transparent communication can help in all aspects of a successful partnership. Committing time to communicating about money can help your clients make sure their goals are aligned and they are both making choices that support their mutual goals.
Robert Warner is Executive Vice President, Managing Director for Cleary Gull.
