By: Ben Mattlin, ThinkAdvisor featuring Nick Strain, CFP®, CPWA®, AIF®, Senior Wealth Advisor at Halbert Hargrove
What You Need to Know
Opposites attract, but when it comes to retirement planning, that can be a problem.
How do you advise couples who don’t agree about money matters?
Separate Accounts for Separate Goals
“We encourage married clients to identify their goals and intentions, prioritize them, and then fund them based on the level of priority,” says Bridget Venus Grimes, president of WealthChoice in San Diego.
But when their priorities diverge, sometimes it’s best to set up individual accounts, at least for certain assets, with a joint account for family expenses. “This allows you to have some feeling of financial independence,” says Winnie Sun, managing partner of Sun Group Wealth Partners in Irvine, Calif.
Differing Risk Tolerance
If there is “a drastic difference” in the partners’ risk tolerance, and they can’t “meet in the middle,” says Bryan Montemurro at Two West Advisors/GoalPath Solutions in Overland Park, Kan., each spouse can exercise control over their respective retirement accounts.
But this works only if, “when combined, the overall allocation is appropriate for the overall wealth plan,” says Christopher Briscoe, vice president at Girard, a division of Univest Wealth, in King of Prussia, Pa.
Strategic Asset Allocation
Eddie Ambrose, a partner at Sound View Wealth Advisors in Skidaway Island, Ga., says strategic asset allocation is another option. “Exposure to growth — i.e., stocks — and a ‘bomb shelter’ portion of the portfolio — bonds, alternatives and cash — allows families to stay invested and meet expenses by tapping into that safe haven,” he says.
Wade Pfau, professor of retirement income at The American College of Financial Services in King of Prussia, Pa., adds that it may be possible to find compromise “by building a lifetime income floor and then investing the more discretionary assets in a more aggressive manner.”
Alternative Income Sources
Yet with rock-bottom interest rates, it’s difficult to secure an adequate, protected income base. Timothy Brown of 360° Family Office in Boise, Idaho, recommends certain annuities with lifetime income riders. They are cheaper than they used to be, he says, and, with some contracts, “the benefit goes on until the second spouse passes.”
Another idea is the Buffer ETF (also known as defined-outcome ETF), which allows you to “stop potential market losses at between 5% and 30%,” says Michael Zmistowski at Financial Planning Advisors in Tampa, Fla. Gains are capped at 7% to 20%.
Communication and Compromise
Whatever solution, both partners must buy in. “When views are different, which is often the case, it can be challenging for both spouses to feel heard and seen,” says Shannon Stone at DHR Investment Counsel in Oakland, Calif. “The opportunity for us as advisors is to build rapport, trust, and understanding.”
At times, it may be necessary to “divide and conquer,” says Charles Sizemore, chief investment officer at Sizemore Capital Management in Dallas, “using the assets of one spouse to cover basic necessities and the assets of the other to cover vacations and entertainment.”
Dan Eck, managing director of EY Navigate in Columbus, Ohio, suggests spouses “have a conversation about roles, expectations, and spending before the first spouse retires.”
If one spouse retires before the other, more than income may be at stake. If the retiring spouse carries the health insurance, “there need to be conversations about how the non-retiring spouse will maintain coverage when the retiring spouse enrolls in Medicare,” says Kimberly Foss, founder and president of Empyrion Wealth Management in Roseville, Calif.
Social Security Timing
Social Security is a key factor, too. Some clients mistakenly believe, “If I don’t take it now, it won’t be around in 10 years,” says Michael Landsberg, principal at Homrich Berg in Atlanta.
Yet receiving benefits too soon can be costly, says Tucker Braddock at Keel Point in Annapolis, Md. “There is an 8% increase in the benefit per year when left untaken,” up to age 70, he says.
Still, if a client can’t wait, it’s generally best to start with the lower-earning spouse, says Nick Strain at Halbert Hargrove in Long Beach, Calif., and “delay the higher earning spouse as a way to protect the higher benefit.” If that spouse passes away prematurely, his or her Social Security goes to the surviving spouse.
Another common bone of contention is charitable giving. “Committing to a charitable gift amount as a couple [and then] splitting the amount between spouses, each for their own interests, is often a great approach,” says Dustin Gale at Kayne Anderson Rudnick in Los Angeles.
Settle on a sum that “won’t jeopardize their retirement” or cause the couple to “risk coming up short for their own expenses and needs,” stresses Robert Spence, director of financial planning consulting at Raymond James in St. Petersburg, Fla.
“You can bundle several years of charitable donations into a Donor Advised Fund,” says Jody D’Agostini, an Equitable Advisor in Morristown, N.J. “You take the upfront tax deduction and … distribute [it] to your charities over time.” She also suggests donating Required Minimum Distributions from retirement accounts (up to $100,000), to mitigate the taxes they incur.
For business-owner clients, retirement planning inevitably involves succession planning. Sam Brownell, founder of Stratus Wealth Advisors in Kensington, Md., says couples can resolve differences by leaving “non-business assets to the children who will not own the business.”
If there are heirs from a previous marriage or other complications, a family trust may be appropriate, says Jason K. Branning at Branning Wealth Management in Ridgeland, Miss.
“Since family trusts are revocable during the grantor’s lifetime, there is little downside other than cost,” notes Jason Field at Van Leeuwen & Co. in Princeton, N.J.