| Many modern-day couples successfully keep their finances separate while both spouses are working and earning; it’s even been known to help keep the peace. But what happens in retirement? Can a shared lifestyle be supported by two separate nest eggs? What if one runs out?
Separate but not secret
Many couples with separate accounts have worked out how to share household expenses equitably. Beyond that, what they each do with their money is up to them. It’s this latter part of the equation that can cause problems for retirement planning, financial advisers say.
“Separate shouldn’t mean secret,” says certified financial planner Jean Marie Dillon of Asheville, N.C. She knows this situation well, not only through working with couples but because she and her husband keep their own money in separate accounts.
Dillon’s husband has children from a previous marriage; she does not. He’s retired; she’s not. They equally cover food, the mortgage, car payments and other joint expenses. They also share a bucket list. But spending differences do arise.
“Sometimes my husband has his own interests and spends money on those things,” Dillon says. For example, he is a bird-watcher who travels to faraway places. “These are expensive trips he goes on, and I have to accept that this is his money, from his separate account.” Of course, her acceptance also stems from having full knowledge of their finances, and from calculating that her husband isn't overspending. “He’s not running us into poverty,” she says. The same applies to her husband’s monetary gifts to his children and grandchildren. “He can do what he wants, but I should be free to ask the question and should expect an honest answer,” Dillon says. “And if I felt it was too much, I’m free to express that.”
To make the arrangement work into retirement, Dillon says that full disclosure plus an agreement that they would each be there for each other financially in the event of an unexpected hardship are key. “We’re comfortable supporting each other, should the need arise,” Dillon says. And among retired couples, she notes, that situation arises with regularity, typically because of medical bills. Especially for those without substantial retirement savings, or for anyone living “on a shoestring budget,” it often comes down to a simple question, Dillon says: Will you be there for me when I need you?
It also comes down to planning. Dillon tells her clients that if they don’t have enough reserves individually, including adequate insurance for something like a catastrophic medical situation, then “a deeper-dive discussion” needs to take place, one that addresses questions such as these: Will one spouse fund the gap should the need arise? Or does one spouse have enough to cover emergencies for both spouses?
If not, she says, couples may need to build up their reserves, perhaps by pulling money out of stocks to create a fully funded emergency fund or to purchase long-term care insurance or adequate disability insurance.