You never enter into a relationship with the expectation that finances are going to become a big problem, and yet financial issues are among the most often cited reasons for divorce. Even couples who build a financial plan for the future often find that plans go awry, adding financial stress to the relationship. Why is that, and what can you do to build a plan that succeeds? We have a long track record of financial planning for couples, and here are a few pointers we would offer:
Understand one another
Most couples don’t talk about money in depth, and they certainly don’t systematically explore each other’s beliefs and values around money and their money history. However, having that knowledge can be invaluable to you when it comes to setting financial goals and in defusing stress as you work towards your goals.
We recently worked with a couple that had been together for years, but were just beginning to build a comprehensive financial plan. One sticking point between the two couples had been their spending habits, as they were quite different. We spent some time exploring what drove each person’s spending, why it was important and how the couple could carve out room in the budget to honor these priorities. The end result was fewer disagreements between the couple regarding day-to-day spending as well as a plan that allowed for spending on priorities while maintaining the savings needed to meet longer term goals.
If you can’t picture the future, start with the present
Picturing the future, particularly the somewhat distant future can be difficult. If you are in your 30s it can be tough to imagine what retirement might look like, and if you are in your 50s and healthy, the need for long term care can seem remote. The more distant an event, the harder it is to imagine, but that doesn’t mean planning for it has to be difficult.
Determining how you want to live in retirement can start with how you live today – how much you spend, what you enjoy doing and where you’d like to be when you retire. Deciding whether or not to purchase long term care can be grounded in whether or not you can afford the coverage, as well as looking at how the retirement goal for both you and your spouse would be impacted if you needed care but had no coverage.
Be flexible and patient
A financial plan is better thought of as a dynamic framework as opposed to a roadmap. Roadmaps show fixed routes, but the path mapped out by an initial plan often changes as circumstances change. The change may be positive, such as a financial windfall or a scholarship to college, or it might be negative like job loss or lower than anticipated savings. Particularly in the latter case, having a plan is helpful as you can consider the negative impact within the plan framework.
Quite often, the impact isn’t as dire as you might think, for a couple of reasons. First, many setbacks are temporary and comprise just a small portion of the overall plan which can stretch over decades. Second, you can make choices within the plan framework – moving out retirement a bit, for example, or saving less now but more a few years down the line – that can help offset current challenges. Finally, if the planning process has included establishing a budget in which you’ve identified discretionary spending, you might be able to pare back there to continue to save at the planned rate.
You don’t have to move in lock step – if you’re like most couples, you likely don’t move in perfect lockstep prior to retirement, and there is no need to change that in retirement. Your spouse might prefer to continue to work full or part-time after you have retired or vice-versa. In fact, doing this often boosts the plan likelihood of success by decreasing the amount needed early in retirement. Another area in which timing can diverge is drawing social security. Your spouse could begin drawing social security while you delay drawing benefits, perhaps because you want to continue working or because you want your benefit to continue to grow.
In fact, determining how to maximize social security for couples is an area of focus for us, and it can make a real difference in the success of your financial plan. We’ll revisit social security strategies for couples in a future post.
Plan on incremental change – a plan that is based on the need to drastically change habits is much more likely to fail than a plan that is based on small, incremental changes over time. You might be surprised at the extent to which you can build a solid financial plan starting with just a bit of savings and increasing it over time, particularly if you are younger and have a long time horizon. As financial advisors, one of the first questions we ask couples that are behind on savings is “what do you think you can save right now.”
While no financial plan can guarantee success, couples who follow the steps above should have much better odds of building a solid foundation and achieving their goals.