Separate Finances Can Be a Lot Trickier for Couples in Retirement

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Please enjoy this excerpt by Cheryl Winokur Munk.

Couples often like to keep their own accounts, but health care, travel and other costs can complicate the math.

For some married couples, keeping separate accounts poses no problems during their working years. But in retirement, it can require some rethinking.

Many couples keep at least some assets separate in retirement, often to preserve assets for children of prior marriages. There can also be a desire to continue the financial independence they’ve grown accustomed to. But once couples with separate accounts enter the drawing-down stage of their financial lives, rules and sharing agreements that once made sense may no longer apply.

One spouse may have enjoyed much greater investing success than the other. One may have lots of disposable income, while the other may have to rely on taxable distributions. Out-of-pocket health-care costs are likely to increase—and be unequal. And if spouses don’t communicate properly, conflicting ideas about spending on travel, helping family and leisure activities can create disagreements and other unpleasant issues.

Tamra Stern, a partner at Main Street Research LLC, in Sausalito, Calif., recalls a wife who retired at age 58 and started spending so heavily on travel and other purchases that she had to go back to work for 10 years to avoid being solely reliant on her husband’s individual retirement account.

Of course, every couple’s situation is different. But here are a few categories that couples with separate finances typically need to address.

Health care

Before retiring, couples should determine what their Medicare and private health-care premiums are going to be. Once the premiums and estimates of out-of-pocket costs are known, this should lead to a discussion about how these expenses will be treated. Will they be shared household expenses and split equally, or should each spouse pay for his or her own medical costs?

If one spouse appears likely to run out of money due to rising health-care expenses in retirement, this needs to be addressed. Does the other spouse begin to pick up most or all of the joint expenses to keep the couple afloat financially?

Income sources

Couples need to consider how their asset allocations will affect their ability to pay their expenses. If one spouse is mostly dependent on a 401(k) for income, he or she might run down this savings sooner because the distributions are taxable.

Social Security benefits can be another tricky area for couples with separate finances to navigate. To maximize benefits, married couples need to coordinate how and when each spouse should start collecting benefits. Strategies can differ depending on their respective ages and means, and could have implications for each spouse’s ability to pay their share of expenses. Thus, the options need to be discussed, advisers say.

Gifts to family

Making separate gifts may not have been a concern during their working years. But before retirement, a couple should discuss what happens if one spouse can no longer afford to give as much. Is the other spouse willing to pick up the slack and should other expense sharing be adjusted as a result?

Ms. Munk is a writer in West Orange, N.J. Email reports@wsj.com.

Appeared in the June 11, 2018, print edition as ‘For Retirees, Divided Finances Get Tricky.’

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