When Your Financial Plan Goes From Mine to Ours
September 20, 2017
As seen on the WJAR NBC 10 Smart Advice Series
Newly married couples face a number of important decisions that will impact your financial planning together. Some of these matters might be addressed in the process of preparing a premarital agreement, if you decided to have one. If not, you and your new spouse should commit to developing a financial plan together that provides you with a mutual understanding of your separate and shared property, debts, income and long term financial goals. Here are some steps to get you started:
1: Get organized.
If you did not have the opportunity to seriously discuss how you will manage money as a couple before the wedding, taking inventory of your assets, income and liabilities, both separate and joint. Share with your new spouse the details of what you own, what you owe, what you spend, and how you feel about investment risk. You both might come into the marriage with your own investments, be sure to review your overall portfolio together to ensure that your asset allocation strategy is aligned with your goals as a couple.
2: Define Spending Needs and Set Saving Goals as a Couple
Newlyweds should work together to assess their income and expenses as a couple so that they can determine the potential for saving. For newlyweds, significant joint expenses, such as buying a new home, day care expenses of starting a family, or paying for education, may consume large portions of your income. Work together to figure out what you can realistically afford while committing to a plan for saving for retirement and long term goals.
As a rule of thumb, you should try to save 15% of your income for retirement, including any employer matching contributions, in a tax-deferred savings account like a 401(k) or traditional or Roth IRA. Consider changes to your retirement funding by marriage such as surviving spouse social security benefits.
3: Minimize taxes
There are tax advantaged ways to plan to retirement, including accounts like employer sponsored 401K plans, health savings accounts (HSAs), and IRAs. The tax-deferred growth achieved on the earnings in these accounts compounds faster than your savings would in taxable accounts. Additionally, your pretax contributions to retirement accounts could reduce your taxable income. You should also review your tax withholding to avoid any surprises when you file your tax returns.
4: Protect Against Unexpected Loss
Married couples should review or obtain insurance to protect your spouse and your property. You should update your homeowners, umbrella policy, and car insurance to add your new spouse as an insured. Consider adding coverage that you may not have secured when you were unmarried, including disability, health and life insurance.
5. Consider Changes to Property Title and Beneficiary Designations
Review the title to your assets and consider making changes. Assets owned jointly provide easy access to both spouses during lifetime and pass to the surviving spouse at death. With respect to your home, owning homestead real property as tenants by entirety can provide not only right of survivorship at death but also strong creditor protections for married couples.
It is important for newlyweds to review all beneficiary designations in place, especially beneficiary designations for IRA or other retirement plan assets. Spouses who are named as beneficiary of retirement accounts have options to roll over the account and defer income taxes on the retirement savings.
6. Update Your Will and Powers of Attorney
Marriage in many states revokes a Will unless the Will was executed beforehand containing a clear statement that the Will was prepared in contemplation of the marriage. It is important that you update your Will to confirm that your property will be distributed in accordance with your wishes after death. Powers of attorney, both financial and health care, should also be updated to add your spouse as agent to make important decisions in the event of incapacity, if desired. When updating your estate plan after marriage, it is important to consider including tax planning provisions that maximize both spouses’ tax credits at death if your assets exceed federal and state estate tax limits.
Contact a Washington Trust Planning Officer at 800-582-1076 or email us at [email protected] for smart advice that’s focused on your unique financial goals.