Things to consider when planning for retirement as a Blended Family
For married couples with blended families, several financial issues can arise. One of the most common ones? Retirement planning. It not to say that blended families are any different than couples wanting to plan for retirement. Planning can look and feel the same, but there might be some slight differences in how primary and contingent beneficiaries come into play. Having a solid retirement plan can make all of the difference. Most people think of a retirement plan like a 401(k), 403(b), IRAs, etc., you are not wrong, but retirement planning can also be a projection look into the future. It can be a simple as a one-page document to, well let's say, I have done one that was about six hundred pages.
The most significant advantage is that you will gain from such a document where you stand at a moment in time. Are you ready for retirement? How long do I need to work to be able to retire at a given age and date? What kind of income will I be re-creating? The list of questions can go on and on.
As you and your spouse begin making plans for retirement and to blend your assets, the following are all things you should keep in mind.
Look at Retirement Assets for Each Spouse
A great starting point for your both — begin reviewing retirement assets and other sources of retirement income that you and your spouse bring into your new marriage. Some of these include:
Social Security
Social Security is a major source of retirement income for most retirees, and there are many strategies that couples can consider in deciding when each spouse should claim their benefit. Factors to consider; include the relative benefit levels of each spouse, age differences, and others.
Ex-spouses can receive benefits as well, if you were married 10 years or longer, the ex-spouse is unmarried and is the age of 62 or older. There are some other eligibility benefits as well. Checking with the social security office and your financial advisor is advised to make sure you understand all scenarios.
Retirement Plans
These include 401(k), 403(b), IRAs, etc. Review these accounts for both you and your spouse to ensure you're taking full advantage of these assets. When doing so, it's essential to review how you're allocating your investments and ensure that this allocation is in line with an overall asset allocation and retirement strategy for you as a couple.
If either or both of you are entitled to a pension from a current or former job, you'll want to be sure to factor this income stream into your retirement planning. You'll also want to look at the optimal time to claim your benefit, if you haven't already, including whether to take the benefit as an annuity or as a lump-sum rollover if that option is available.
Taking advantage of tax savings benefits from the different retirement accounts that one can have.
One good rule of thumb to ask yourself regarding former jobs is – If I am no longer at that place of employment, why is my retirement plan?
IRAs
Another form of retirement savings for non-qualified assets that can offer tax efficient options, IRAs can have many benefits and if you and your partner plan accordingly an IRA can lower your taxable income, and increase after tax return.
How convertions can play an important part before and after your retire.
An important factor to consider with retirement accounts and workplace pensions is to ensure that any beneficiary designations reflect your current marital status as appropriate. If the beneficiaries are listed as someone other than the person(s) you wish to benefit from the account, the beneficiary designation listed on the account will govern regardless of the account holder's intentions. This could include an ex-spouse or another unintended beneficiary.
Beyond any retirement accounts, taxable investments should be considered. For example, if you or your spouse have a stock-related compensation plan, such as options or restricted stock units from an employer. Or an individual brokerage account adding a beneficiary to the account can assure that the assets pass along as you intended.
What Does Your Retirement as a Couple Look Like?
If you're in a blended family situation, you should look at what the financials of retirement will look like for the both of you. Things to consider include:
What type of lifestyle do you envision during retirement? Will you stay in your current home? Perhaps you'll want to downsize or even relocate to another part of the country.
What types of activities will you engage in during retirement? Will you travel extensively?
Do either or both of you have any unique medical needs that will significantly impact your spending in retirement?
You'll also want to consider any financial obligations arising from a prior marriage. These might include child support obligations, alimony, or a QDRO agreement whereby a former spouse receives some or all of their ex-spouse's retirement plan assets.
If any special situations could impact your retirement, like a special needs child or another situation that would make or delay your retirement, knowing what that looks like well in advance is crucial.
Are There Assets that Should Be Excluded from Consideration?
In the event of a second marriage for either you or your spouse, there may be assets that should be excluded when looking at sources of retirement income. These could be assets that are part of a divorce settlement or a business you developed to pass to a child.
In some cases, assets not included among the marital assets for you and your spouse have a lengthy discussion about it. One thing that is suggested is a togetherness agreement; it can be used for a number of purposes to bring understanding early on from both points of view.
A Togetherness Agreement is a detailed financial vision of your life together. It is not prenuptial; the togetherness agreement is not a statement of, if this thing does not work out, it is an understanding between the couple.
Essentially, the TA involves putting everything on the financial table, your assets, debts, dreams, and obligations and deciding how you can meet your needs and facilitate your marriage's permanency. The whole process takes work, and time but the net result is a more substantial relationship as you design your positive, secure future together. Couples choose to use or not to use an estate planning attorney to help facilitate the process.
Are You on Track Toward a Successful Joint Retirement?
Planning is key. Couples in a blended family need to take in of all potential retirement assets as early as possible to ensure that you're on track toward a successful retirement. You'll also need to consider other aspects of your situation.
For example, if there is a significant age difference between you both—will the younger spouse's retirement be secure when the older spouse passes, assuming the older spouse dies first? This is a consideration in terms of which accounts are tapped first, including non-qualified accounts, 401(k) 's, IRA's and other retirement accounts.
Another area missed is ensuring that beneficiary designations on retirement accounts and life insurance policies are in order is also a vital part of the retirement planning process for a blended family. To my surprise, it's one of the biggest areas missed in planning. In the event of one spouse's death, these assets could be a vital part of the retirement income for the surviving spouse.
This is crucial if you're a married couple in your first marriage, but it's even more essential if you're in a blended family situation. This same thought process also applies to any wills or other estate planning documents and how bank accounts and real estate are titled.
While there is a lot of planning related to assets that each of you brings into the marriage, planning for assets accumulated during the marriage is also critical. How this is handled can significantly impact your financial future, especially your quality of life in retirement. These assets must be properly titled to reflect that they are joint assets of the couple where appropriate. In the case of retirement accounts, practical workplace benefits, and life insurance policies, they will need to have up-to-date beneficiary designations.
Pulling It All Together
Retirement and financial planning are complicated for any married couple, but a couple where a blended family is involved adds to this complexity.
Working with a knowledgeable financial advisor about the retirement issues involved with a blended family can help both you and your spouse take an objective look at your retirement readiness and help you establish a retirement plan to make the most of your combined retirement assets.
Sources:
Retirement Planning for Blended Families | Fifth Third Bank. https://www.53.com/content/fifth-third/en/wealth-management/resource-center/retirement-planning/retirement-planning-blended-families.html
Marriage equality and retirement equality | Pension Rights .... https://www.pensionrights.org/blog/marriage-equality-and-retirement-equality
Social Security and Medicare | Financial Wellness Center. https://usrbpfinancialwellness.com/social-security-and-medicare/
An Introduction to Independence for spouses and Spousal .... https://www2.deloitte.com/content/dam/Deloitte/us/Documents/governance-risk-compliance/us-independence-for-spouses-2019.pdf
Creating a Shared Vision for Blended Family Finances .... https://www.focusonthefamily.com/marriage/creating-a-shared-vision-for-blended-family-finances/