How to not flunk retirement
In my last two columns. I wrote about investment disasters.
In my 34 years of advising retirees and those transitioning into retirement, I have never seen anyone with a properly diversified portfolio and reasonable spending goals go broke or even need to reduce their spending much due to a stock market drop.
The causes of those two outcomes have been other things and poor financial planning. So, my next few submissions for FLORIDA TODAY will discuss how some people damage their retirement.
Probably the most common cause of retirement failure is overreliance on one person in the family to make investment and financial planning decisions. It is easy to see why this is an issue for single retirees who take care of everything themselves. Without a plan and help, they are very vulnerable to problems caused by health issues, cognitive decline, or the army of scam artists targeting single retirees.
With couples, the vulnerabilities can be less obvious. In most relationships, there is a division of labor. One may cook and the other will do the dishes, for instance. Financially, it is common for one person to take the lead on financial matters. The couple feels like they have things in control. This arrangement does in fact work great for most couples, until it doesn’t.
The same vulnerabilities that singles face are also possibilities for either or both spouses. If something happens to the less financially active spouse, the financially active spouse’s situation can look very much like that of a single. If something happens to the financially savvy spouse, the less active spouse is thrust into a position for which they are often not well suited, no matter how smart and well educated they may be. If they had the specific knowledge, experience, time and energy for these things, they would likely have been the financially active spouse all along.
One of the most distressing things I see is a couple within which the financially active spouse, usually the husband (sorry guys) has his ego tied too tight to his role as the financial leader for the family. Now, he has a right to take pride in this role. Assuming he is doing a good job, he is taking care of his family, and it can be very valuable. But, what if he’s not up to the job? Then some planning is in order.
At the very least, all estate planning documents should be up to date. If you have people relying on you or want certain people to make decisions for you if you are unable, you need proper documents. Period. Full stop. You need to see a qualified estate planning attorney. Too many people neglect these documents because they think estate planning is about taxes, only for rich people, the sick, the old or just about who gets what when one dies. Not true.
For instance, say you have a medical issue and struggle to handle things. If you have assets in your own name, like a 401(k), 403(b) or IRA, it doesn’t matter that you are married, or for how long, or that your spouse is the beneficiary. Without proper documents granting her authority such as a power of attorney, your spouse cannot easily get to those funds or manage those accounts.
On the financial planning end of things, you must think about what is best for the less financially active spouse. Have you established relationships with competent advisors that are fiduciaries to you in all matters?
You may like investment management but does your spouse? Can they answer basic questions like how much can be spent from your savings? How much should be invested for growth and how much for stability? What exactly should those investments be? What accounts should the money be pulled from and when? What tax management techniques should be employed? What are the best ways to make charitable donations or gifts to family? Are gifts to family even affordable? How will healthcare costs be paid? Who will help keep the scam artists at bay?
Life can be messy sometimes but with some forethought and good planning, our finances don’t have to become a mess too.
Dan Moisand, CFP® has been featured as one of America’s top independent fee-only financial planners by at least 10 financial planning publications and practices at one of America’s most decorated independent firms. For more info, e-mail him [email protected], visit moisandfitzgerald.com or call Dan at (321)253-5400 ext 101
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