Talking to Your Spouse About Money

Key Points – Talking to Your Spouse About Money

What Are You and Your Spouse’s Retirement Goals?
You’re Likely Going to Spend a Lot More Time with Your Spouse in Retirement
Building a Plan That’s Centered Around What’s Important to You and Your Spouse
Your Spouse Needs to Be Factored into Your Social Security Claiming Strategy
6 Minutes to Read

Talking to Your Spouse About Money Can Be … Enjoyable?

How well do you think you know your spouse? Whether you’ve been married for one year or 40-plus years, we don’t doubt that you’ve gotten to know your spouse pretty well. However, we have an exciting challenge for you to test how well you know your spouse. Talk to your spouse about money. If you’re scratching your head about that last sentence, let us explain how talking to your spouse about money can be fun.

As you head into retirement, you’re about to be spending a lot more time with your spouse. Think about it. All those hours spent at work are likely going to be replaced by doing things with your spouse in retirement. So, when you’re planning for retirement, you shouldn’t just be doing it alone. You need to go through the retirement planning process with your spouse.

What’s Important to You and Your Spouse?

Talking to your spouse about money is a key part of the retirement planning process, but that’s not how it starts. It starts by figuring out what’s important to you.

What are your goals for retirement?
What are your spouse’s goals for retirement?
And what are your joint goals?

When our CFP® Professionals meet with couples for the first time, the focus of the conversation isn’t even about money or investments. It’s about what’s important to the couple. We need to define your desired retirement lifestyle to build a goals-based plan for you and your spouse.

At Modern Wealth, our CFP® Professionals take couples through a prioritization exercise to learn what’s important to them. Each spouse individually outlines the most important things to them heading into retirement and then they share those things with each other. You’ll probably be surprised how many couples learn something new about each other during the prioritization exercise. It’s usually enjoyable for the couples and our CFP® Professionals as well.

How Are You and Your Spouse Going to Fund Your Goals-Based Plan?

Now that you and your spouse have outlined your retirement goals, it’s time to figure out how you’re going to fund them. This is where you really begin to talk to your spouse about money. What income sources do you have now and what income sources will you have in retirement? What does your money need to do for you and your spouse to achieve your objectives in retirement?

Keep in mind that you both have a partner in your respective 401(k)s that isn’t each other. It’s Uncle Sam. So, let’s say that you have $1 million in your 401(k) when you’re about to retire. Well, you don’t actually have $1 million. Uncle Sam hasn’t taken his piece of the pie yet. That’s just one example of why it’s critical to understand the tax implications of your different source of retirement income.

Considerations for Retirement Planning

One source of income that all couples will have at some point in retirement is Social Security. There’s a problematic misnomer that the age in which you can begin claiming Social Security (62) is synonymous with the age that you retire. First, your decision on when to claim Social Security isn’t just about you. It’s a decision that greatly impacts your spouse as well, so Social Security needs to be a conversation as you’re talking to your spouse about money.

Talking to Your Spouse About How You Want to Claim Social Security

For the average 62-year-old couple, there are more than 600 iterations of how you can claim your Social Security. The difference between the best and worst decision can be a substantial amount of retirement income. It’s critical to realize as you’re talking to your spouse about money that the longer you delay claiming Social Security, the bigger the benefit you’ll receive.

Let’s look at why that’s important from a couple of different angles. What we hope will happen is that you and your spouse will both live long, happy, and healthy lives. If that is the case, is your financial plan structured in a way so that you won’t run out of money in retirement? Longevity risk is a very real risk, but it’s something that you can plan for. How you and your spouse claim Social Security is a big part of that.

Planning for the Unexpected

Now, let’s look at what to consider with Social Security if you or your spouse passes away unexpectedly and/or much earlier than the surviving spouse. Unfortunately, many people don’t think about the Social Security spousal benefit or surviving spouse’s benefit until a spouse passes away. When one spouse dies, keep in mind that the surviving spouse keeps the higher of the couple’s two benefits. You want to make sure that benefit will be as large as possible. This helps to illustrate why the decision on when to claim Social Security isn’t just about you.

Tackling the Topic of Taxes When Talking to Your Spouse About Money

While Social Security income is a key income source for most couples in retirement, it doesn’t tend to play nicely when combined with other retirement income sources. Social Security by itself isn’t taxable. But when you combine Social Security with other income sources, up to 85% of your benefit can be taxable.

And speaking of taxes, you can’t forget that the surviving spouse becomes a single taxpayer. That means that they’ll likely be getting thrown into a higher tax bracket despite losing the lesser of the couple’s Social Security benefits. Also, when talking to your spouse about money, make sure to be aware of the current and future tax brackets. Tax rates are scheduled to go up in 2026 when the Tax Cuts and Jobs Act sunsets. We’ve been doing more and more Roth conversions with couples so that they’ll be pay the tax at today’s lower rates and then get the distributions tax-free. The thought of tax-free income usually makes a lot of people smile when you’re talking to your spouse about money.

What About Pensions?

Another income source that might be a part of the conversation when talking to your spouse about money is pensions. Dean Barber and Bud Kasper recently talked all about pensions on America’s Wealth Management Show when breaking down the differences between defined benefit and defined contribution plans, so make sure to tune in if you and/or your spouse have a pension.

One of the things that Dean and Bud talked about during that show were the Pension Benefit Guaranty Corporation 2023 maximum monthly benefits. Most spouses with pensions will have a joint and 100% survivor from the PBGC. That option includes a 20% haircut. For example, let’s say you have a $5,000 per month pension and are doing a joint and 100% survivor. You’ll receive $4,000 a month. And then if you pass away before your spouse, your spouse will still get $4,000 a month for the rest of the life.

Talking to Your Spouse About Money Should Involve Family Financial Planning

We can’t stress enough that your health is a huge part of your true wealth. But as we mentioned, it’s critical to plan for the unexpected so that you and your spouse will be OK if something happens to one of you. That’s why we encourage you to start planning for retirement at least five to 10 years before retirement. Talking to your spouse about money is something that needs to happen throughout that process.

For many couples, legacy is one of the things that’s most important to them. The rules surrounding wealth transfer got incredibly complex when the SECURE Act was signed into law in December 2019. Many of those rules changed again when SECURE 2.0 was signed into law in December 2022.

Retirement planning actually goes one step further than talking to your spouse about money. It’s important to talk to the rest of your family/beneficiaries as well about estate planning. We like to think of it as family financial planning. If you care about your loved ones, it should be a priority of yours to communicate your needs, wants, and wishes to them. We’re guessing that the last thing that you want to have happen when you pass on is for your beneficiaries to inherit a mountain of taxes. It’s pivotal for them to know what they’re inheriting so they can plan for it as well.

Talking to Your Spouse and Family About Money with a Team of Professionals

We don’t expect you or anyone who isn’t a financial professional to be able to keep up with the ever-changing rules with wealth transfer. It’s a full-time job to understand all those rules, and our team is up to that task. At Modern Wealth, we have CFP® Professionals, CPAs, CFAs, estate specialists, and insurance specialists that work together to get the best outcomes for our clients.

We can help you as you’re talking to your spouse and other loved ones about money by building you a comprehensive financial plan. It’s our goal to build a plan that can help give you and your spouse more confidence, freedom, and time. Again, whether you’ve been married for one year or 40-plus years, let’s start building your plan by figuring out what’s important to you and your spouse.

If you’re ready to start building your plan or have questions about talking to your spouse about money, we’re here to help. You can schedule a 20-minute “ask anything” session or complimentary consultation with one of our CFP® Professionals by clicking here. We can meet with you in-person, virtually, or by phone depending on what works best for you.

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Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.