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Retirement planning: Couples can, and should, coordinate their separate plans
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Many couples map out their retirement savings plans separately. But failing to coordinate them can lead to significant problems. - photo by Jeff Wuorio
Couples anticipate retirement in different ways. One partner may embrace volunteer work or travel, while the other looks forward to simply basking in a work-free environment.

Factors such as personal investment preference, risk tolerance or a second marriage can also prompt spouses to approach retirement planning and investing in very different ways.

But authorities say couples need to understand the difference between separate plans that take both partners into account and planning thats dangerously disconnected. That takes open communication and, if need be, compromise.

The bottom line is that like most other things for couples, successful retirement planning involves collaboration, cooperation and compromise from both partners, said Lawrence Solomon, director of investments and financial planning at OptiFour Integrated Wealth Management in McLean, Virginia. Couples can have different portfolios and investment profiles but need to share common goals and have a coordinated plan to achieve them.

Reasonable differences

Common disagreements over money can carry over into retirement planning.

A 2013 study by Fidelity Investments on couples and retirement found that less than half 43 percent of people participating in the study made joint decisions on how to invest for retirement. And, to a certain extent, thats fine.

Its perfectly OK for couples to have different risk tolerances and investment objectives, Solomon said. Under those circumstances, its appropriate to have two different portfolios managed to those two risk profiles and objectives.

On occasion, distinctly separate retirement plans are as much the result of circumstances as they are individual financial preferences.

I think the primary reason I see people keep their accounts separate is that they are in a second marriage with children from the first marriage. They want to ensure that their own children receive an inheritance and that their spouse does not have the ability to 'disinherit' their children if they should die first, said Tim Holt, a Glendale, Arizona, estate planning attorney. Once in a while I meet a couple who have kept their finances separate for their entire married life and keeping their retirement separate is just an extension of that.

There are other built-in limitations to synching retirement plans. As money manager John Graves, author of "The 7% SolutionYou Can Afford a Comfortable Retirement pointed out, many retirement vehicles such as individual retirement accounts (IRAs) and 401(k) plans are by definition 'he/she' accounts. Each is in the name of the contributor. Each typically has the spouse as the named beneficiary.

Another advantage to separate retirement accounts is if the marriage ends in divorce, both can simply hang onto their accounts without squabbling over fair separation of assets.

From an account and functionality perspective, each individual has to retain their own separate account whether they are using a 401(k), IRA or other retirement savings vehicle, said Pittsburgh wealth management adviser Christopher Cannon. So, in this respect, yes, there have to be separate accounts.

The perils of separation

While couples do execute separate retirement plans, financial professionals warn that too much autonomy can raise the risk of one partners program conflicting with the other, such as two portfolios that are both exceedingly aggressive and offer no hedge against volatile market conditions.

When it comes to saving for retirement, its best for couples to have a concerted plan in place. Otherwise, they are more likely to come up short in meeting their retirement goals, said Shomari Hearn, vice president of Palisades Hudson Financial Group in Fort Lauderdale, Florida. Its very possible they will have different levels of tolerance for risk, so they may have to compromise in terms of selecting a target asset allocation that will generate enough growth to meet their needs without being overly conservative or too aggressive.

A coordinated plan is particularly important when couples start tapping into their retirement savings.

Coordinating finances can be extremely important in the distribution phase of retirement when working to decide which account to pull money from that might be the most tax efficient, said Pittsburgh wealth management adviser Christopher Cannon. Theres the old saying that the left hand doesnt know what the right hand is doing.

Lack of overall coordination can also impact retirement in areas other than retirement savings. As Solomon noted, its critical that partners work together in deciding when and how to begin to receive Social Security benefits.

To maximize cumulative benefits over both spouse's lifetimes, the best approaches involve strategies where one spouse starts Social Security at normal retirement age while the other delays until age 70, he said. That can achieve thousands of additional benefit dollars for married couples, but they cant be implemented without cooperation and joint planning involving both spouses.

Keep it together

One common situation when couples pursue separate retirement planning is both scattered accounts and professional guidance. As much as possible, say financial authorities, its best to place separate accounts with the same company overseen by the same management.

Far too many people have many accounts and many different advisers when dealing with retirement accounts, said Las Vegas, Nevada, certified financial planner Brent Leavitt. Usually the financial adviser has to come in and round it all up and make sure it is acting the way it needs to.

A commitment to finding common ground whenever possible can make even the most extreme differences of opinion less of a problem for instance, one partner adjusting his portfolio to be more conservative to better complement a spouse with particularly aggressive holdings.

Likewise, couples benefit by keeping communication between themselves and their financial advisers open, whether it be about Social Security or considering long-term care insurance.