Planning for Your Financial Future Together

Couples who plan together often end up talking about hard topics, including the possibility that they may not always be together. Of course, this doesn't mean you can't plan for retirement together - just the opposite, in fact. But planning for a scenario where one partner outlives the other or in the event of a divorce is important. That's why life insurance and retirement planning are worth discussing together as part of the bigger picture.

The Role of Life Insurance

For many couples, life insurance is one piece of protecting your future self and your partner. While it's not pleasant to think about, having adequate life insurance can provide financial security for your loved ones in the event of your untimely death.

There are two main types of life insurance to consider:

• Term Life Insurance covers a specific period, typically 10, 20, or 30 years. It's generally less expensive than permanent life insurance and is often used to cover specific financial obligations like a mortgage or children's education expenses.

• Permanent Life Insurance is a type of insurance that includes whole life and universal life policies. These policies provide lifetime coverage and often include a cash value component that may grow over time. Keep in mind that insurance and investment products are not deposits and are not NCUA insured. Values can go up or down, and returns are not guaranteed.

When determining how much life insurance you need, consider the following factors:

• Income Replacement - If your partner relies on your income, one factor to weigh is how many years of that income they might need replaced.
• Debt Payoff - Consider any mortgages, car loans, credit card debts, or other obligations you wouldn't want to leave behind for your partner.
• Future Expenses - This might include children's education costs, weddings, or other major future expenses you've planned for.
• Final Expenses - Consider funeral costs and potential medical bills not covered by other insurance.

For many couples, having life insurance on both partners can make sense - even if one is a stay-at-home parent. Whether that's the right fit depends on your household's income, debts, and financial goals.

Reviewing your life insurance coverage from time to time can also help keep it aligned with your situation. Major life events such as the birth of a child, buying a home, or a significant change in income may be a good time to take another look at your policy.

Retirement Planning When Both Partners Work

When both people in a couple work full-time, a workplace 401(k) is often the simplest place to start, if an employer offers one. If your employer offers a 401(k) - especially one with matching contributions - it may be worth looking at how much you can comfortably set aside. A 401(k) is an individual account in your name, and you can name beneficiaries who would receive the balance after your death. Plan rules vary - some plans require a spouse's written consent before you can name someone else - so it can help to check the details of your specific plan.

Contributing as much as you can to these accounts - especially up to the employer match - can make a meaningful difference over time. How much to contribute depends on your overall financial picture, including any debt and near-term cash needs.

If your employer doesn't offer a 401(k) benefit, consider an Individual Retirement Account (IRA) and other savings options. Traditional IRAs may offer tax-deferred growth. Depending on your income and whether you have a workplace plan, contributions may be deductible, and you generally pay taxes when you withdraw money in retirement. Roth IRAs are funded with after-tax dollars. Withdrawals in retirement can be tax-free if they meet IRS rules - generally, being at least 59 1/2 and having had the account for five years. Income limits can also affect who is eligible to contribute.

Savings can be automatically deducted from a checking account each period, so you don't have to remember to make deposits. This "pay yourself first" approach can make saving more consistent over time for many people.

Retirement Planning When One Partner Doesn't Work

Individual retirement options become more challenging when one person works and the other doesn't for an extended period. In these cases, it can help for couples to talk through how they want to handle investments and savings, and how each person stays protected now and in the future.

A Spousal IRA is one option some couples explore when one partner doesn't work. It allows a spouse with earned income to contribute to an IRA on behalf of a spouse without earned income. Contribution limits are the same as for regular IRAs, but the couple generally must file a joint tax return and have enough earned income to cover both contributions. Income limits and other IRS rules can also apply, so a tax professional can help you confirm what's available in your situation.

Even if one spouse hasn't worked, they may still be eligible for Social Security benefits based on their partner's work record. The non-working spouse can receive up to 50% of the working spouse's full retirement benefit. Remember, Social Security benefits are subject to complex rules and conditions. For the most accurate information, consult the official Social Security Administration website or speak with a Social Security representative.

Note that spousal IRA contributions and Social Security spousal benefits generally require legal marriage. If you and your partner are not legally married, these options may not be available to you - a financial advisor can help identify alternatives that fit your situation.

The Importance of Open Communication

For many couples, open discussions about how they'll handle retirement savings when only one partner is working can help both people stay on the same page. Will you contribute equally to both partners' retirement accounts? How will you ensure the non-working partner's financial security? These conversations, while potentially uncomfortable, can help couples stay aligned as their situation changes.

It's also important to understand how your financial situation might change if you and your partner separate. If a couple divorces after many years of marriage, questions often come up about how retirement funds and other savings are divided.

In many jurisdictions, retirement savings accumulated during a marriage are considered marital property and may be subject to division in a divorce. This means that even if only one spouse worked and contributed to a 401(k), the other spouse may be entitled to a portion of those savings. Laws regarding the division of assets in divorce vary significantly by state, so the advice of an attorney can help you understand the specifics as they apply to you.

Seeking Professional Advice

While it's possible to manage much of your financial planning as a couple on your own, there are times when professional advice can be invaluable. Consider consulting with a financial advisor, especially when facing major life changes or complex financial decisions.

Additionally, don't hesitate to seek help from other professionals as needed. This might include a tax professional for complex tax situations or an estate planning attorney to help set up wills, trusts, and other legal documents.

The Takeaway

Protecting your financial future as a couple is about more than just saving for retirement. It involves a comprehensive approach to financial planning that includes insurance, estate planning, and regular financial reviews.