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5 Mistakes Couples Make to Screw Up Retirement

Financial Symphony / John Stillman
The Truth Network Radio
October 13, 2016 12:56 am

5 Mistakes Couples Make to Screw Up Retirement

Financial Symphony / John Stillman

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October 13, 2016 12:56 am

Planning for retirement as a couple can have its advantages (compared to planning retirement as a single person). But it can also have its challenges, and couples often screw things up. This week, John discusses the five most common mistakes couples make.

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Welcome to another edition of Mr. Stillman's opus.

The podcasts that tells all about what you need to know in the financial realm will for sure will tear alongside John Stillman. John, you don't partner could have you here today, although I guess it's really your here on every podcasts so you should be really saying good have me that's a good point on the right. I can actually feel like the celebrity welcome welcome to the 30 go on today's podcast were to be talking about the five ways and this is not an exhaustive list, but the top five way will be exhausted by the time I'm done probably the five ways couples were not sugarcoating this screwup retirement. Why we talk about well because couples often screw up every time not being on the same page is missing critical mistakes picture by the way, I should preface this by saying if you're single, you have some issues that you need to think about, but it's a different set of problems in couples so neither one is more or less challenging than the other retiring as a single person versus retiring as a couple. Actually, I might say that retiring is a single person.

In a lot of ways is easier but there are disadvantages to any of it. Talk about couples today that some of the principles will still apply to signature so reason number one. The couple screwup retirement is just not talking about what they want to do what they want retirement to look like where they want to travel.

Not talking about how they are investing how they feel about wealth. What sort of legacy they want to leave so many times people come into the office and they've just never talk about any of this, like, it's clear that the first conversation you're having about any of this stuff related to money is right there in front of me in the office and so the classic example is couple years ago I had a fellow who you are asking what they wanted to do for what can a fun money to be need to factor in their retirement plan and his answer was, well were to get an RV. This is been our dream for years we will get RV see the country hit a few baseball stadiums you know 10 or 12 baseball stadiums around the country. Couple of college football stadiums that they'd really like to go to and the whole time is talking his wife is looking at it like what planet you have other heaves that he, like so that's our retirement dream and she said that's not my retirement.

But just never talked about it and he assumed that you know he probably mentioned it at some point you will be fun to have an RV drive around the country and had a lot of different ballparks and she's really cool. Sure honey it was old yeah it was 15 years ago and she forgot this conversation never existed, and so we see that a lot just have some conversations about what you want to do in retirement how you going to spend your time. A lot of couples are not on the same page in terms of travel, willingly go. For instance, maybe husband has travel a lot for work. The wife hasn't, or vice versa. And you are one of them has traveled a lot in their travel about the other person wants to see the world so just have these discussions because obviously the financial peace is going to be dictated by what you want the lifestyle to look like. So we need to figure out what that needs to be. It's like any marriage where, or any other aspect of marriage where communication is going to be extremely important and what comes the finances as you learn as you've accumulated wealth and and kind of you know, lived week to week or month to month or in a maybe there was time when you were first married or living paycheck to paycheck units figuring out the finances together. Now were just talking about even the stylistic or lifestyle type things to write in another example would be the house, but how's it going live.

So again, this is couple years ago but it's one that comes to mind one of the things we always discuss is are you going to stay in the house that your currently is at the house you're going to die and are you likely to downsize at some point or move to a different part of the country or what about this couple they'd been living in a $600,000 house for five or six years they were in their early 50s and so we are asking okay is that where you envision yourself staying annual they were talk about some of the challenges it was a bigger house, and they'd had, but you'll totally worth that they love the yard love the neighborhood. They love the house and he said it, it's really our dream house and yes it's probably more expensive than what we really should have, but were willing to sacrifice on other lifestyle little bit because it's our dream house and his wife said he doesn't have to clean it is not our dream house. Okay, so she wants to move she was ready to dance Molly but again, they just never had that conversation well right so that's the first way couple screwup retirement that lack of communication lack of being on the same page when it comes to the lifestyle of retirement and sometimes it does come back to the to the actual financial elements doesn't jump yet. In fact will say. Problem number two with couples in their financial planning is pension spousal benefits making the wrong choice on that either not taking enough of the spousal benefit are not taking any spousal benefit or maybe taking a spousal benefit when you shouldn't couple of examples have a client who's been in the military very substantial military pension. I think he was in the Army for 25 years, so he was getting close to 10 grand a month from the Army from the federal government but he retired it mid 50s.

I guess 55 and is getting 10,000 a month for the rest of his life. He took no spousal benefit at all. So, pretty big income gap when he passes away the film reflector she's going to lose Social Security and is $10,000 Malaysian well now is compound the problem with the fact that she's nine years younger than him, she's only living for probably a lot longer. 12+ years.

Statistically, is how long she's going to outlive him by and so that's more than a decade of 10 grand a month. We gotta make up somewhere now. Fortunately, they have the assets to do it and you know it's a combination of using their assets properly and also I think some life insurance and his case was how we were to fill the gap, but that's one of those things if he had it to do over again, he would take some spousal benefit little less income you wouldn't have 10 grand. He might get you 8500 is just to illustrate that for us.

What that difference would look like in it in an average situation. Excellent say maybe he gets 8500 a month but then she gets 50% of it when he passes away.how many different ways can they structure those pension those withdrawals and those those option you know it's going to depend on your company.

In a lot of cases you might have five or six different options so you could do like the spouse get half as much for 1/4 as much, or nothing at all, or spouse keeps the full pension or if your spouse dies first, you actually get a bump up, you can take those option so there's a lot of different ways to structure it but again we have to look at it within the entirety of the income plan and be sure the patient sits in with the other pieces in winter those decisions get locked in for most, but that's the trouble with it. Once you make that the election you can't change.

You can go back after a year or two, it's you know what let me pay you back some money and let me have a spousal benefit instead.

Not that looked just like Social Security. Once you pick a path that surpassed interesting that you brought up Social Security because that's problem number three tricks like that segue you just made living realize it not coordinating your Social Security claiming strategy is another way couple screwup retirement planning and again this is just something you need to talk about a lot people make the knee-jerk reaction of our item 62. I get some money out of the system, baby, baby, let's do it, no Internet check on when in reality that's often not the best way to go. Some people say what were gonna put off until 70 will draw down on all of our other assets and we can take our maximum benefit at age 70. Also not necessary. The right choice. So you have each of these competing elements and then you have one spouse may be taking it early in another spouse takes a late and maybe they should've done it the other way if you'll sit down and coordinate again, not just your Social Security claiming strategy with each other but also again within the totality of your income plan. We can look at these things in a silo by themselves have to make sure all the pieces fit together. And until you look at the big picture how you do that, so that's a problem. So you got pension Social Security. We talk about being on the same page when it comes to just the general conversation of retirement. That's three of the five ways couples screw up their retirement with number four. This would be couples who don't appropriately coordinate all of their accounts together, take into account what they each have more of an is a little planning, strategy, and I see this a lot in second marriages were. Maybe they still have their own individual bank accounts which I see a lot in second marriages. You get burnt once and often it takes a while to trust the second time around. And so very often in second marriages.

You keep your finances separate, but I see so many people who in their second marriage. They're not coordinating all of their assets and it's just all right. Well he pays these bills and she pays these bills and we each have our own money coming in as long as we each have money coming in, we can each pay these bills. Well, the problem is what happens when one spouse dies is really hard to know if the other spouse is going to be on good financial footing when we lose your spouse because more likely than not, the bills that he was paying some of those bills are still going to exist. Once he dies. It's not just like his Moose Lodge dues and stuff like that is going to go away when he dies.

Usually it's like she buys the food he makes the house payment. Something like that but you lose one spouse. The bill still exist for the other person and so sometimes people look at just their accounts and say well I just want to know that I'm going to be okay regardless of any of his money or that that's fine and that's a perfectly good way to look at it but we have to understand what liability do we have what he is playing so poorly that he runs out of money and you're both still alive, but you have to now pay all the bills or what if he dies and you know we still have a lot of liabilities to take care of, but he has left much money behind so it just works so much better if you at least have a conversation to coordinate your different counsel at the beginning the podcast you were talking about the differences between singles and couples planning and you said singles are often one of the easiest. You know, in most cases are to be easier to plan with. I would imagine you're striking right there that one of the ways that it's easier for couple to plan because with the power of two right you can be a little more crafty you can you one can help the other.

That's were kind of Euripides is moving pieces a little better. Sure so theoretically, you have twice as much money to work with. You have to Social Security payments, but your bills are easily twice as high as a single person right your housing costs are roughly similar sure your food bill might be twice as high cable but is the same you got a lot of stuff is pretty similar. So in a lot of cases it is easier with the couple.

But on the other hand, for a single person will have to worry as much about long-term care but say you have some long-term care coverage that's good. And then you go into a nursing home. You have all of your income and all near your house can be sold at that point were not selling the house out from under your spouse, so the healthcare planning is easier for a single person very often and lots of crossover simplicity versus some complexity between the two scenarios are at five ways couple screwup retirement. We've gone through four. What's the last one last one is not managing risk in a way that both couples are comfortable with so very often and I see this a lot with engineer type clients, especially dudes who are engineers very focused on the details they have their plan of how they want to do it and they've had their spreadsheet for years and their target rates of return that they're trying to get over the course of the years and all that. And they've invested that way for years and you know they might have a lot of volatility in their portfolio because they're seeing the twenty-year 30 year picture and are trying to get from point A to point B, they understand the big picture and then maybe their husband or wife doesn't see it the same way and they just want to know that things are going to be okay. All they care about is can we pay the bills. If we both live until were 90 or if you died 75 and I live until 90 am I going to be taking care of at the end of the day that's all they care about and so you have this clash of philosophies of I want absolute best return on my money over the course of the next 30 years. My retirement and that's competing with. I just want to know that were taking care of.

And so sometimes you have to have some very frank conversations with couples and in some cases and in one case I can think of. I had to pretty bluntly say to guy look is it okay if we take a little bit less risk with her money in her 401(k), then you're taking with yours. Mathematically, we can make it work.

Either way, but the fact that she has always volatility in her 401(k) because that's how you told her to allocated is driving her crazy. Is it okay with you if we take a little bit less risk with that money than you would prefer to take and when he looked at that way. He was actually fine with hints you know your classic marriage compromise right and so very often spouses on different wavelengths when it comes to risk and if you're just going one person's risk tolerance of the other the other person is going to be uncomfortable but say the husband wants to take more risk and wife wants to be really safe.

Off they go really safe and conservative with everything to drive him crazy because he's not getting the return that he wants every year over the course of time, and if he's too focused on return over the course of time, and she wants more safety is driving her crazy to see those account balances go up and down and so again it's just something we have to get on the same page and have these conversations. Figure out who wants what emotionally and then figure out all right.

Let's just suppose we can make it work mathematically. Either way, if that's the case let's find the thing that fits both of you emotionally as best as we can very well there you have it.

The five ways that couples often screwup retirement and some the ways you can avoid those things. Great conversation. Thanks, Jim yes or Tracy. Thanks for being here-thank you for shaping your guest and host today. This is been another edition of Mr. Stillman's opus will talk again next


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