Interview with CNY 55 Plus Magazine

Sonnet L. Loftus, CFP®
 

Originally posted Wednesday, October 19, 2016

I was interviewed for an upcoming article in the CNY 55 Plus Magazine. While the topic was focused on the financial and legal effects of marrying later in life (55+), the discussion brought up a lot of great points that are applicable no matter your age.

Here is an excerpt from my discussion...


Q. What financial issues should couples talk about before marriage?

There are financial and legal effects in any marriage, but when it happens later in life (55+) it can get a bit more complicated. An open dialogue is vital.

First priority, the couple will need to discuss how their assets are to be protected. I suggest picking up the phone and calling their property and casualty agent immediately to explain existing coverage amounts. With the blending of households and nearing retirement age, it is imperative that the right amount of coverage is in place so that the wealth they have created over their lifetime will not be in jeopardy.

Medical insurance should be reviewed for benefits and cost. Is coverage through one employer more favorable? Perhaps the couple should explore options on the exchange.

Where is the couple going to live? Will they consolidate homes or move to a new home altogether? Will living expenses be shared? If so, this may provide an opportunity to take advantage of low interest rates with a new home purchase or a refinance.

Is this a second marriage? Review and discuss divorce decrees immediately. The couple may find there is an obligation to an ex-spouse with life insurance, maintenance payments, etc.

Are children involved? If so, the couple will want to discuss family dynamics and any college funding needs. Are there outstanding student loans?

Health insurance should also be addressed. Are adult children in need of health insurance? If so, the Affordable Care Act requires issuers to offer dependent coverage to age 26.

Spouses should also discuss their parents. Is either spouse currently caring or will be caring for an aging parent? At some point an aging parent may require care beyond what can be provided by a non health care professional. I suggest talking to aging parents and confirm their wishes so that there is a plan in place for today, tomorrow and down the road.

Q. How can marriage affect Social Security/pensions?

Marriage has an effect on Social Security benefits and this is an area that requires careful consideration. Deciding when to file and whose record to use can have a significant impact on cash flow. It is important to remember that if either spouse is divorced but was married for 10 years or longer, they are no longer entitled to the ex-spouse benefit once they remarry (unless the new marriage ends by death, divorce or annulment).

Planning for pensions is also important, as it has an impact on overall retirement planning. Couples should discuss their intended pension election. Will it be single life? Will the benefit go to the surviving spouse or to children? Decide now before things get complicated.

Q. Should the couple discuss their wills with their children?

Wills should be updated immediately and the couple should have conversations with all children involved so they are made aware of estate planning decisions. This may help to strengthen relationships as the families are blended.

Each state has a statutory plan that outlines how property is to be distributed at death should the descendant pass without a valid will. In New York State, assets that would have otherwise passed through their will are affected by intestate succession. This affects assets held in a sole name such as checking accounts, automobiles and personal property. There is a risk that something happens before their wishes are known and any plans have been made.

I recommend that the newly married or soon to marry couple complete a Family Care Package, from Michael Roberts Associates, Inc. The purpose of the package is to provide loved ones with a consolidated list of important information and document the location of documents needed in the event of a death or disability. This document will help save time, reduce stress and ensure nothing is forgotten.

Q. What is one thing to avoid financially when approaching retirement?

Not taking an active role in the retirement planning process. You work hard for every dollar you earn and you should know where it goes and why. Talk to your advisor, see if you are on track and see if there is anything that needs to be addressed that has not already been considered. The goal should be to live comfortably in retirement, while entirely possible; it does take work to get there.

Q. How cautiously should one invest this close to retirement?

Presumably, investment and retirement accounts will be used as sources of income in retirement.

No matter what age, investment portfolios should match risk tolerance. With advances in medicine, people are living longer and retiring later. An investor in their early 50’s may still have at least 15 years of saving and investing before they start thinking about distributions. Retirements can last well over 30 years. This has caused us to change how we think and plan for retirement. In this low interest rate environment, I believe it is important for investors to keep some growth on the table in order to continue to grow their assets.

Q. How important is it to pay off debt? What type of debt (revolving, mortgage, etc.)?

There are two things we can reasonably control leading up to retirement—how much we earn and how much we spend. It is important to focus on paying down debt while one is still receiving a salary. Look at any outstanding high interest credit card debt and put a plan in place to aggressively pay it down—especially if there are sufficient funds in low interest savings vehicles.

While paying a mortgage in retirement is not ideal for most people—financially and psychologically – mortgage rates are at historic lows and the interest paid can be a tax deduction.

Q. How can a person know he has set aside enough money for retirement? Is there a formula?

We all have different cash flow needs depending on our living expenses and spending habits. The first thing to do is decide what percentage of what they spend today they plan on spending in retirement. Is it 75%? Is it 80%? Something else? From there, we have to make some assumptions regarding inflation rate and life expectancy. A present value of a future sum calculation will tell us how much money is needed to maintain anticipated annual distributions. Take the sum of any investment and retirement account balances, factor in social security estimates and any pension estimates and one can see how well they have prepared.

Sonnet Loftus is a CERTIFIED FINANCIAL PLANNER™ professional with Michael, Roberts Associates Inc.