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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
It's an inequal distribution of power, which is bullying. And it's it can be very dysfunctional and unnecessary stress for retirement. But people don't look for marriage counseling necessarily. I do end up doing some in some sense, but here's really the the foundation of the question. Here's kind of how you solve it.
Mike:Welcome to How to Retire On Time, a show that answers your retirement questions. We're here to move past that oversimplified advice you've heard hundreds of times. Instead, we do want to dive into the nitty gritty because, well, it matters. There's no such thing as a perfect investment product or strategy. Heck, there's no such thing as a perfect or riskless retirement.
Mike:That's why these details matter. Text your questions to (913) 363-1234, and we'll feature them on the show. David, what do we got today?
David:Hey, Mike. How do you create a plan for a couple who want to keep their finances separate?
Mike:The tricky part about this, because they're a couple, assuming that they're married, is taxes. What one person does from a tax standpoint affects the other person. So if there's a second marriage, if there is a Let's say there's not a second marriage, they just manage their finances separately. And maybe one spouse is disadvantaged than the other because one spouse worked and the other spouse didn't. I see these situations every now and then, to where it's like, that's That doesn't make any sense.
Mike:You gotta work your whole career, and yeah, you paid, but you also contributed more to your four zero one k, and now you're it's always the woman, almost always the woman, the bride has less to work with, and you're doing your finances separately, this What in the world's going on?
David:Yeah. I yeah. I was wondering when I read this question, like, often do you see this? Do they keep their finances separate, and what circumstances are they doing that?
Mike:Usually when when the woman is at home with the kids raising them, the finances are combined. The problem is when the woman's at home, their finances are combined, a divorce happens, maybe the woman didn't get as much in the settlement or the settlement in the divorce, and then marries someone, and maybe that person has more or less assets. Now you have two households, they're managing their finances separately, they both want to live the same life, but they're now contributing different allocations or amounts to percentages to the the income. They're now saying, well, we'll all take care of 60%, you take care of 40%. It gets very tricky.
Mike:In addition to that, maybe one spouse wants to travel more, and one spouse doesn't see the value of travel. Maybe one spouse wants to buy a Winnebago, and the other spouse couldn't be bothered by a Winnebago. Maybe one spouse so you have a lot of nuance in how you handle the finances. Okay? Who pays for what?
Mike:And people will say, well, we kind of have their system. And I'll admit, like, I I don't balk at these things. When they say they have their system, fine. They're not looking for marriage counseling, but it's almost always based on a bully system. One person has more power than the other person.
Mike:It's an inequal distribution of power, which is bullying. And it's it can be very dysfunctional and unnecessary stress for retirement. But people don't look for marriage counseling necessarily. I do end up doing some in some sense, but here's really the foundation of the question. Here's kind of how you solve As dysfunctional or functional as you might be, and that's up for you to decide.
Mike:I'm not really a judger in that sense, but I have my opinions, but I don't I'll work with you regardless. You decide your system. But the first thing first is what's the lifestyle that you both want to live? You put together a plan with both of your assets combined or contributing to that plan. That's how I prefer to do it.
Mike:And then what you do is you say, Okay, this is your Social Security, this is your Social Security, here's the different ways that would be affected. You've got a pension, great, and you've got the assets that were saved, okay, here. And you start to blend it all together, and then you figure out survivability. So what would happen is if one spouse were to pass or the other spouse were to pass, and then you take two portfolios and you figure out, okay, in each portfolio, how much of a percent will contribute to the household income that's needed to accomplish that goal?
David:Okay.
Mike:Then you've got to look at who has more in pre tax accounts like IRAs, and who has more account, more money maybe in a non qualified like a brokerage account or a personal account. Do they have a lot of money in Roth? So you have to figure out that distribution. Then you've got to tie Do you see how complicated this is? It gets complicated.
Mike:Then you've got to sort through the ages, so who's going to be subject to RMDs first, and you've got to then start considering RMD or IRA to Roth conversions in preparation for the RMD, so the household is not disrupted, but not disadvantages the other spouse in case something happens. So it's a very delicate balancing act. We do it all the time, but you've got these different layers, and there's a very specific order of operation. You put the plan together first, then you figure out are there any landmarks or issues, RMDs, and so on. How much do you have in the different taxable accounts?
Mike:And then you start to construct the portfolio based on the protection needs, based on the income needs, based on the growth needs, based on the liquidity needs, and so on, so that you can then say, alright, here's basically two portfolios, they both support one plan. Now they're unified.
David:So is this is this all worth it? Is it I mean, would you ever try and convince a couple like, no, this is too hard. Let's maybe you should just combine everything or share.
Mike:It's a great question. When you see a fitness coach or nutritionist, they're gonna ask you how committed you are and how technical you wanna get. Uh-huh. Some people are gonna wanna get so technical that they're measuring the macro and micronutrients of their their meals. Other people are gonna want flexible dieting.
Mike:So flexible, you've got, you know, one quarter of your plate in this type, one quarter in this type, then a half your plate in this type. Some people, it's calorie cal Everyone has a different system. Mhmm. The job of the nutritionist isn't to force everyone into one system that some people will adopt and others won't adopt. The job of the nutritionist is to help people live healthily.
Mike:Our job isn't to force someone to a certain system. Our job is to work within the system that they want to live by and help elevate their quality of life by allowing them to live. Many people will let these nuanced, you know, things hold them back from living their best life. They're like, well, I don't know about this. They'll certain questions, they'll avoid certain conversations, and what ends up happening is they'll work longer than they want at a job they don't care for, or they will just kind of have this, sometimes a silent divorce.
Mike:They're married, but it's just like they're more roommates than anything else. Resentment can come out. Mean, it's just all these things that kind of hold back from your overall quality of life. So I believe that these things should be addressed, and because there's so many ways that you can create a solution, it's are you willing to have an open conversation, not be offended, but just be honest about it. I mean marriage counseling, for anyone that's ever done that, that's a very uncomfortable thing.
Mike:But if implemented correctly, you've got a good marriage counselor, you've got two parties that are willing to work things out, you typically end up with a better marriage. So if you can end up with a better financial environment, a healthier relationship with your money, and a healthier relationship with money and your spouse, it typically leads to a better overall quality of life, a better retirement to where you can spend time, your most precious asset, maybe a little bit more deliberately. I don't know. What do you think?
David:Yeah. It sounds like I I feel like I say this every week, but there's so many little things to consider. There's so much more as as you dive into the details, maybe details you didn't know. You didn't know that that the pool was 10 feet feet deep. You thought it was a, like, a kiddie pool.
David:Right? Yeah. And then you discover, oh, no. This this goes deep if we want it to.
Mike:Most people's solutions I have found, and this is anecdotal, they are the kiddie pool. They're the simple solution because it's all they could really understand at the time. They're not financial professionals. They don't really understand what's going on, but they don't understand. It's like, you know when people hurt other people unintentionally?
Mike:They didn't mean to do it. It just kind of happened. So if you have two spouses, let's say they are doing things differently. One spouse has a lot less than the other spouse, but they're filing their their their taxes jointly. Well, one spouse with the lesser amount with the lesser social security is paying at a higher tax rate than the other spouse.
Mike:That's not fair. No. And so if you're gonna do it that way, you've gotta it's like if if you if you want x, y, and z, you've gotta be okay with a, b, c. There's there's a almost like a contract with if you you have to want the consequences of your actions.
David:Mhmm.
Mike:And so many times, I've said, alright, she it usually it's usually she. She's gonna withhold a lot less from her social security, but you're gonna withhold a lot more. And they'll say, well, that's unfair. Well, you're creating all these tax issues for her. Oh.
Mike:So it is actually fair, and we just show the numbers and say, you know, this is what's going on. Mhmm. Sometimes, we will actually run two plans, and they'll have agreed that they're gonna contribute x dollars per month to the household, and so run the plan separately, but the caveat usually is, but you have to file married filing separately. And you're gonna operate within your own lanes. So there is some marriage counseling here.
Mike:Uh-huh. You can't have your cake and eat it too, but these are healthy beneficial conversations because if your finances aren't in order, what else isn't in order? When people argue about money, I have found it's not really about the money, it's a symptom of a deeper problem in the relationship or within the person. So these are good things to talk about. These are good things to work through.
Mike:We don't want to shy away. We don't want to actively avoid uncomfort or pain or I don't know, anything that would be difficult. We want to address them, so once we get through it, then we can enjoy more. Any other thoughts on that?
David:Sounds fair. Yeah. No. Sounds really fair. Everybody has to be willing to be open and not get offended, right, and just
Mike:talk. My wife is extremely kind and extremely giving. Something we've had to work on, I'll admit openly is, I try to make sure she knows she can ask for anything. And the expression we have is, everything is a negotiation. So if she needs help with something, and she might she'll be maybe shy about it and say, I don't want to inconvenience him.
Mike:It's like, no, I want you to tell me. Yes, couples we we inconvenience people. All people inconvenience other people. That's how relationships work.
David:Yeah.
Mike:But it's okay to be inconvenienced. It's okay, but I can't help you if I don't know your needs. And so, you know, she'll say, hey, can you can you come home and help me with this? And I'll say, well, I've got this and this going on. She says, I really need it for these reasons.
Mike:I'll say, oh, got it. Thank you for telling me. And I can I can hear the hesitation, but it's like, no, everything's a negotiation? And she'll go, yeah, that's true. That's true.
Mike:Yeah. That's how it needs to be in a relationship. Even if you're single, you're negotiating with yourself. With your friends, you're negotiating with your friends. In finance, you're negotiating the risk versus the protection.
Mike:You're negotiating how you wanna handle your taxes. Everything in life is a negotiation. So let's get out of the black and white, and let's really dive into the gray Mhmm. And find the right shade for you. That's all the time we've got for today's show.
Mike:If you enjoyed the show, consider telling a friend, leaving a rating, and most importantly, that you are subscribed to it so that you don't miss a thing. For more resources, including a copy of my book, on demand courses, and so much more, just go to www.retireontime.com. If you want help putting your retirement plan together, go to retireontime.com and click the button that says get started. But seriously, from all of us here at Kedrick Wealth, we wanna thank you for spending your time, your most precious asset with us today. We'll see you in the next episode.