Would Your Financial Plan Survive You?

Life Events

Would Your Financial Plan Survive You?

One of the realities of married life is that one spouse is usually more focused on the couple’s financial and retirement planning than the other.

November 19, 2014

One of the realities of married life is that one spouse is usually more focused on the couple’s financial and retirement planning than the other. Often, although not always, the husband is the “financial person” who oversees the couple’s investments and handles the details regarding retirement and estate planning. Since women typically outlive their mates, it’s wise for wives to be fully conversant with the couple’s financial plan. However, regardless of which partner assumes the lead financial role, part of his or her responsibility is ensuring that their joint financial plan doesn’t unravel when the inevitable occurs.

Unfortunately, because discussing a loved one’s death isn’t pleasant, many couples put it off. That’s a mistake because it invites problems by essentially assuring that the surviving spouse will have to make important decisions when he or she is 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 is often more “hands-on” and may be better suited temperamentally to the task, meaning that 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 arise.

Although the “financial person” sometimes views the advisor as someone their spouse can turn to when they’re gone, that process should begin much earlier.

Avoiding this sad outcome can be eased by recognizing that there are really three parties in this equation – husband, wife and financial advisor. (You also may want to bring adult children into your discussion.) Both spouses should have a good working relationship with their advisor that includes – at a minimum – understanding the couple’s 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 all the couple’s accounts are under one roof.

Each case will be different, but the underlying objective is to identify and discuss the different ways each spouse approaches investing and to plan accordingly.

One key concept to acknowledge is that the surviving spouse may not want to handle financial matters the same way. 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. In such a case, it may be wise to either modify the portfolio ahead of time or identify investment alternatives such as mutual funds that may be more suitable for the surviving spouse. It may be beneficial to create an investment policy statement that can guide the less-involved spouse and discuss important subjects such as the annual withdrawal rate their portfolio can support. If there are areas you can put on autopilot, consider doing so. Again, simplicity is your friend here.

Having immediately available cash gives the survivor time to adjust without needing to make major financial decisions.

A well-structured financial plan will include substantial cash reserves, and this is especially important for the surviving spouse. 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. (Remember to account for funeral expenses.) It’s true that yields on cash accounts are miniscule right now, but 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. Be sure the surviving spouse knows which account to tap first if it becomes necessary.

It’s important that both spouses fully understand whatever recordkeeping system the “financial person” is using and have easy and immediate access to those files. Be aware that one spouse’s way of approaching financial recordkeeping may not make sense to the other, 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, IRA(s), 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 account. 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 changes.

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 the ultimate detail – that responsibility for carrying out a couple’s goals may shift from one spouse to another late in life. If that reality is acknowledged, discussed and approached as partners, it even can be a way for couples to become closer.

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