Ensuring your financial plan outlives you

March 22nd, 2018 | Tax Tips

Generate seamless life transitions by tailoring your plan to the needs of both you and your spouse

Married life brings with it a divvying up of responsibility. In the past, husbands often oversaw investments and handled retirement and estate planning details. This is changing, however. And, considering women typically outlive their male counterparts, modern couples understand it’s essential for both individuals to be familiar with their family’s financial plan. It’s also important to keep in mind that the partner who assumes the lead financial role has a responsibility to ensure the financial plan can be maintained if and when one spouse passes away.

STRATEGIC COORDINATION

Unfortunately, because discussing a loved one’s death is unpleasant, many couples put it off. That’s a mistake – one that invites problems by essentially assuring that the sur­viving spouse will have to make important decisions while they’re dealing with the stress of a major life loss. Making certain your financial plan survives you begins with talking about it, in detail, with your spouse.

This is particularly important because the person who handles financial matters may have a temperament that’s better suited to the task, meaning the surviving spouse can be left with a plan that seems complicated and difficult to follow. Since that spouse also will be dealing with grief, it’s easy for trouble to surface. And although the spouse who’s maintained the couple’s finances likely views their financial advisor as someone their partner can turn to when they’re gone, the other spouse may not view the relationship in the same light.

Alongside your financial advisor, identify and discuss the different ways each spouse approaches investing – then plan accordingly.

Avoiding this unfortunate outcome can be eased by recognizing that there are three parties in this equation, and that forming a good working relationship between you, your partner and your financial advisor is of the utmost importance. This relation­ship should include – at a minimum – an understanding of your investment strategy and portfolio holdings, what accounts are included, how assets are titled, and what needs to happen if one spouse dies. In this regard, it’s a lot simpler if your and your partner’s accounts are all under one roof.

THOUGHTFUL ACCOMMODATION

Acknowledging that the surviving spouse may not want to handle financial matters in the same way is essential for the long-term success of your plan. For example, choosing specific stocks, bonds and other investments may be fine for a well-informed and experienced “do-it-yourself” investor. However, the surviving spouse may not have the time, experience or inclination to be a portfolio manager. If that’s the case, it may be wise to either modify the portfolio ahead of time or identify investment alterna­tives that may be more suitable for the surviving spouse. Creating an investment policy statement – a document that discusses important subjects such as the annual withdrawal rate your portfolio can support – can also help to guide the less-involved spouse when the time comes.

THOROUGH PREPARATION

A well-structured financial plan will also include appropriate cash reserves, which will prove especially important for the surviving spouse. Having immediately available cash gives the survivor time to adjust without needing to make major financial decisions. Try to set aside a year’s worth of living expenses – more, if you can manage it – in highly liquid accounts such as CDs, money markets, and checking and savings accounts. Though yields in these kinds of accounts are minimal, that’s not the major consid­eration here. You want to buy time for the survivor. Life insurance is essential and can help, but there’s no substitute for immedi­ately available cash.

To be fully prepared, it’s also important that you and your spouse both understand whatever recordkeeping system has been used and have easy and immediate access to those files. Be aware that your way of approaching financial recordkeeping may not make sense to your spouse, and try to bridge any gap that exists.

It’s useful to have a master directory that covers every relevant account, asset and obligation. This might include bank and brokerage accounts, corporate retirement plans, IRAs, life insur­ance policies, real estate and other assets such as coins, art and collectibles; partnership agreements if one or both spouses have their own businesses; and any other items that have a bearing on your long-term financial objectives. This directory should include account names and numbers, contact people and their phone numbers, URLs and passwords – anything necessary to access and manage the accounts. Obviously, you don’t want this falling into the wrong hands, so be sure it’s stored safely and that there’s a backup copy in a separate location. Remember to update both directories as time goes by and your situation evolves.

Although details matter a lot here, what’s most important is ensuring that all your hard work and careful planning aren’t dam­aged or even undone by failing to consider that the responsibility for carrying out your shared goals may shift from one spouse to another late in life. If that reality is acknowledged, discussed and approached as partners, it can serve as a way for you and your spouse to grow closer.

Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision. Diversifica­tion and asset allocation do not ensure a profit or protect against a loss. Investing always involves risk and you may incur a profit or loss. CDs offer FDIC insurance and a fixed rate of return whereas both principal and yield of investment securities will fluctuate with changes in market conditions.

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