Retirement Planning Differs For Unmarried Couples

You have devoted your life to working hard, providing for the loved ones around you, and saving for your retirement years.  Now as you approach your golden years, you have raised your family, you have built an estate that you are proud of, and you are deeply committed to your relationship with your significant other.  You both are a happily unmarried couple, and you know that you want to spend the rest of your life with this person. With this said, is your retirement plan specifically tailored to your unmarried relationship with this individual?

Unmarried couples must realize that their retirement planning is a completely different animal compared that of married couples.  As an unmarried couple, don’t let your retirement years discriminate against your wishes for you and your significant other.  It’s important to plan  your retirement together now with a financial advisor/ financial planner to uphold your security in the long run.  Therefore, if you are in an unmarried long-term relationship, please consider the following elements when planning for these golden years with your partner:

Living Arrangements

When an unmarried couple initially moves in together, one of the partners may sell or rent his/her home.   That partner might move into the other partner’s residence, or the couple might decide to buy an entirely new house together.  Whatever the scenario might be, the couple might distribute living expenses depending on which partner qualifies for tax deductions.

 

Furthermore, if the couple did indeed buy a new home together, an expert might suggest that the couple purchases life insurance policies on each other to help pay off the mortgage in the unfortunate event that the other partner suddenly dies.  Considerations must also be made about whose name will be on the bills and the how expenses will be shared.  Also, additional considerations must be made regarding estate documents.   For example, if a partner dies, will the surviving partner continue to live in that home until his/her own death, or will the deceased partner’s family members immediately inherit the home?

 

Joint and Individual Accounts

Many unmarried couples prefer to keep both individual accounts and a joint account.  In regards to individual accounts, the couple can separate the assets/debts that each partner individually accumulated and incurred before “couplehood”.  Many couples also open up a joint account primarily funded by both partner’s monthly social security benefits.  This joint account can then be used to pay for expenses together, such as housing expenses, restaurants, vacations, etc.

 

IRA, Pension, and Retirement Assets

Unfortunately, the spousal advantages of retirement accounts and benefits can be nonexistent for an unmarried couple.  These spousal advantages include advantages, such as the spousal rollover IRA option and the spousal pension continuation benefit election.   An unmarried couple must also annually review beneficiary designations (such as IRAs, annuities, and life insurance) in order to uphold each partner’s exact wishes.  Because of the contractual nature, beneficiary designations will always supersede heirs in other estate documents.

 

Separate Tax Returns

Complex consideration must be taken when an unmarried couple files separate tax returns.  The couple has to determine which partner gets to deduct which expense.  Because each partner’s individual contributions can vary, deductions vary as well.  Thus, it’s best for an unmarried couple to seek the services of an accountant especially for tax returns.

 

Estate Planning

As an unmarried couple planning for your enjoyable retirement together, no partner wants to contemplate the possibility of an unexpected sickness, an accident, and even death; however, both partners must be strong and plan for the unexpected as well as the very end.   For this reason, a will, power of attorney, living will, and healthcare directive is essential to have. For instance, an unmarried couple must carefully consider who will make final medical decisions if one partner in the relationship is unexpectedly gravely ill and on life support. Will the other partner or the children of the sick partner ultimately determine when to “pull the plug”?

 

As for estates, many unmarried couples choose to keep estates separate.  Especially in these cases, financial advisors/ financial planners are needed to set up trust agreements, wills, and other estate documents.

The End Game

Compared to married couples, unmarried couples have a multitude of additional considerations to make when planning for their retirement together.  The complexity of an unmarried couple’s retirement plan increases especially with the presence of ex-spouses, children, grandchildren, separate estates, etc.  You and your significant other must navigate through this retirement planning process with the help of a trusted financial advisor/financial planner.  Especially if you are an unmarried couple over the age of 60, you must request the financial, legal, and tax advice of experts in order to protect  your happy retirement, your estate, and your wishes as a couple.  So, don’t navigate these waters alone; seek the help of an expert today.

 

Merkel, Steve. “Relationships And Retirement Planning.” Investors Business Daily. 2 November 2012. <http://news.investors.com/investing-personal-finance/110212-631985-relationships-and-retirement-planning.htm>

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Why Women Trail Men in Retirement Planning

It’s often said that mothers naturally put others first, which, admirable as it is, becomes a problem in terms of their own financial future.  A new study by the ING Retirement Research Institute shows that women, on average, are much less prepared for retirement than men.  Not only do fewer women have formal investment plans in place, but those that do have a retirement plan have over $40,000 less than their male counterparts in those savings plans.  One of the most concerning numbers is that only 25% of all women have a formal investment plan.

There is no question that women need to do more in terms of saving for their retirement.  At ages 65 and older, the majority of women in today’s society are single, which means they need to have a plan for funding their retirement.  Before we can start to search for a solution, it’s important to pinpoint the causes.   What is holding women back?

We must start with the most obvious: women are oftentimes mothers.  Although times are changing and more women are heading out into the work world, the fact that the majority of households have women as the main caretakers for the children is a major obstacle in planning for retirement.  The study showed that women on average have $41,000 less in their retirement savings than men, with a $149,000 to $108,000 spread, but that gap gets even more significant when women have children at home.  That $41,000 disparity grows to $61,000 with those women having only $88,000 in their retirement savings accounts.  This number can be attributed to the fact that mother’s spend more of their working years as caregivers rather than breadwinners, which can lead to deficits in their earnings, savings, and Social Security.

Despite the fact that the gender wage gap is becoming smaller overtime, many women fail to capitalize on the skills that they bring to the work force.  These skills can often be a women’s greatest financial capital through her adult years.  Women often fail to see these skills, which makes them much less likely to negotiate for pay raises or benefit increases.  They also don’t take advantage of what their employers offer.  On average, only 65% of mothers are receiving their employer’s full company match while 76% of fathers are.  That is money waiting for women to reach up and grab, but 35% fail to make the stretch.

Another reason many women are unprepared is that they simply don’t feel comfortable in the financial arena.  Financial Planning is a profession that is male-dominated, which leaves many women untrusting of those advisors.  66% of all women indicated they received their financial guidance from family members or friends.  Furthermore, trends show that women often prefer to get their information from sources where they can anonymously research and make decisions, such as blogs, websites, social media sites and so on.  These can be valuable assets to their planning, if they use them.  The unfortunate truth is that only 35% of women have spent time thinking about their retirement, which is a big indicator as to their lag in savings.

One other issue that inhibits women from proper planning is their scope of the issue.  Only 28% of women have calculated what their retirement will cost.  This follows the long-standing stereotype that women avoid numbers and calculations.  Many times, when women hear about a 2% return annually on their investment, they don’t respond as enthusiastically.  If they change their vantage point to a more tangible result, such as an investment leading to their daughter avoiding student loans, they tend to be more interested in the planning.  Because of the limited and technical vantage point, many women find it easiest to simply avoid the issue altogether.

The hard truth is that women are saving less but living longer and, often times, are living their longer lives independent of men.  This lack of savings can lead to outliving their finances, the inability to afford long-term care or burdening their children, all of which are major concerns on the mind of most women.  So it may seem that despite the money spent on cards and flowers this past Mother’s Day, the most valuable gift for these women is simply a conversation about their financial plans for the future.  It doesn’t look as pretty in a vase but it certainly will bloom for much longer.

Photo courtesy of 500.co

 

 

 

 

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How to Plan Your Estate as a Cohabitating Couple

Estate planning can seem like a long, uphill battle to a land that is optimistically distant.  No one likes to think about what happens after they’re gone, but this thought process can be the difference between recovery and devastation for your loved ones.  It’s critical to ensure that you have taken the proper steps to put your affairs in order so that your spouse and children will be taken care of.  This task can be even more critical for the growing number of couples choosing cohabitation over marriage.  These couples lack many of the legal rights that aid married couples in their estate planning.  The growing numbers of the adults choosing to cohabitate rather than marry, either heterosexual or same-sex, need to take extra care in planning their estate to ensure that all of the I’s are dotted and T’s are crossed.

The main concern in estate planning for all couples, either married or unmarried, is to ensure that the right people are getting the right things.  This means creating a will that outlines where and how your assets will be distributed after your death.  Those wills need to be written early and evaluated often, and can be changed at any point by either party if they so choose.  When it comes to these wills there are a few extra things that unmarried couples need to take into consideration to ensure that they are legally protected and organized in a way that gives them the rights that married couples have.

1.       Inability to “Take Against the Will”–  Ensuring that both of the individuals involved in an unmarried partnership are on the same page in terms of the asset distribution in the wills is increasingly critical because they don’t have the ability to “take against the will” that married couples have.  This right gives the surviving spouse the ability to take a portion of the deceased spouse’s property instead of the amount that they would receive through the will.  This amount is usually anywhere between one-third to one-half of the total estate and if it is taken, its considered “taking against the will.”  Since unmarried couples aren’t given this right, it’s important that the amount given to the surviving partner is suitable to both involved.

2.       Lack of Intestacy Rights– The law of intestacy, also called the law of descent and distribution, acts as something of a failsafe against the lack of an official will.  This law dictates who is entitled to the property from the estate of the deceased if it hasn’t been outlined in a will by the individual.  Normally the assets are distributed to the spouse, followed by children and grandchildren.  This law is aimed at settling problems that arise when a will isn’t present, but it can cause problems for unmarried couples, as the surviving partner can find themselves left with nothing.  This is why it’s incredibly important for these couples to a) create a will and b)keep it in a safe place that both people are privy to.  If these wills are lost or misplaced, the partner has no legal claim to estate.

3.       Medical Care Rights-  Many times, in a medical situation many difficult decisions that cannot be made by the individual, if they are incapacitated for example, are determined by the spouse.  In the case of an unmarried couple, the partner has absolutely no say in any of these decisions.  In some cases the partner could actually be barred from the room because they don’t have any legal family ties to the individual.  Because of situations like these, it’s important to not only plan for what happens after death, but also to plan for events that occur during their lives.  The designation of a medical care representative can give unmarried partners rights relating to the medical care of each other.  This appointment can be made through power of attorney as well. No matter how it is done, it’s important for these couples to establish the necessary rights that they lack because of their unmarried status.

4.       Common Law and Civil Unions-  In the case that partners either engage in a civil union or present themselves as a married couple and can be considered as a common law marriage, some of the laws and rights surrounding inheritance and medical decisions can change.  These partnerships depend on the laws of each individual state.  There are only eleven states, including D.C., that recognize common law marriages, and the rights of those partnerships have an incredible amount of variation between them.  It’s important for couples to understand the legal climate of the state in which they live and how they need to plan in order to protect their rights and their assets.

Estate planning is a critical step in everyone’s lives, no matter their marital status, but there is nothing more disheartening that thinking of leaving your loved ones with nothing.  As society shifts and the number of unmarried, long-term cohabitating couples continues to rise, the laws regarding the rights of those couples may eventually follow suit, but until then it’s important to make sure they cover all of the bases.

 

Photo courtesy of http://timesofindia.indiatimes.com

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