Ep 38: Financial Mistakes Couples Make

On This Episode

Getting husbands and wives on the same page with their retirement plan can often be a challenge. Let’s talk about some of the things that couples often mess up.

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PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:


Mark: Everybody welcome to the podcast. Thanks for tuning into the show. As we talk about investing, finance and retirement here on Retirement Planning Redefined with John and Nick. And we’re going to talk about couples this go around and some financial mistakes couples often get into. Because John, I don’t know about you, buddy, but my wife and I are on the same page about everything all the time.

John: Yeah. Sounds like you go by the motto happy wife, happy life.

Mark: Yeah. Not so much. No. She would disagree with that. Something fear. She’s like, “If I could ever get you to agree with me on anything for happy wife, that’d be good.” But no, this is a joke people make all the time. Couples that definitely do not see eye to eye on a lot of things, and finances is certainly one of those.

John: Finances and kitchen remodels, definitely. So…

Mark: Kitchen remodels, Nick, what’s going on with you, buddy. How you doing? We don’t want to leave you out.

Nick: Pretty good, just staying busy, happy that football seasons here, NFL season is here. I’m looking forward to fall weather in Florida.

Mark: Yeah. Well it’s on its way, hopefully. So we’re into September when we’re taping this. So let’s get into it and talk about some stuff. I imagine you guys see a lot of different things when couples come in, and you see a lot of different people on, whether they’re on the same page or different pages or whatever the case might be. And many times as much as couples might think they’ve talked about this stuff, I imagine you guys probably see that they didn’t talk about it as much as they should have, or maybe as a depth or they just really glossed over the subject.

Mark: So let’s dive into a few things and see if we can highlight stuff for folks. So when they do come in and sit down, maybe they’re a little further along in this conversation, and you guys don’t have to wear your marriage counselor hats along with your financial advisor hat. So number one, making the wrong choice on how to handle the spousal benefit option, if you’re lucky enough to have a pension, I talked to a bunch of guys advisors and stuff, fellows over the years that have said, “It’s amazing how many times somebody will take that without even talking to their spouse about it, just because they see that higher number.”

Nick: Yeah, it’s interesting that a lot of places have put some restrictions from the perspective of the paperwork where they’ll have to be a notary sign off or things like that, but we’ve seen them without, and there’s definitely a misconception or misunderstanding on how these pension payouts will work. And so this could be a mistake that it’s typically a one-time decision. So for anybody that has substantial income, that will be coming in from a pension, this could ultimately be the most important decision that they make, and it’s something not to overlook. And just to be a little bit more direct, oftentimes they will see the single life option, which you would referred to as the highest payout, and not realize that if something happens to them, then nobody gets any remaining benefit.

Nick: One of the ways that we’ll try to phrase that to people is, no matter what, I’ve never met anybody that wants to have worked for a company for a long time, and even if there’s a divorce situation or something where if something happens to them that nobody gets any of the benefits that they would have been due for the rest of their life. So on making sure that those options are understood and making sure that they’re correlated and tied into the rest of the decisions that they’ve made for their planning it’s super important.

John: Yeah. And a big thing to that, Nick mentioned single life, is understand the different joint survivor lives. You can have a joint survivor where one passes away, they still get a 100% of the benefit. And then there’s a couple of different options where you get 75 and 50%, and it’s always good to reference the plan to make sure if one person passes away that the plan basically is still intact and that surviving spouse can still hit all their goals.

Mark: Absolutely. On those conversations, if it does happen, I can’t imagine that the other person’s too happy about, “Hey, wait a minute, why did you take the wrong one and leave me out?” So, you want to make sure that you’re doing those for sure. Number two is the coordination on the social security strategy, social security is that horse that we’re going to beat constantly, because it’s a big component of people’s retirement plans, and the money that’s out there. But we can’t get into this rush to just go turn it on without really thinking about a strategy, especially if you’re married, because there’s a lot of strategy involved.

John: Yeah, there is. You hit it perfectly when you said it’s a big decision. I believe social security equate for like 30 to 40% of someone’s household income in retirement. So you want to coordinate it right, and the biggest mistake we typically see is once one person retires maybe early at like 62, 63 64, they’re just going to go ahead and turn it on, while the other spouse is working, but there’s definitely a lot of different strategies that you can implement. Nick and I focus heavily on planning, and it really all does come back to the planning cause everyone’s situation is different, but you really want to look at what’s best for your situation. Does it make sense to defer the higher amount for survivor plan down the road? We just talked about pensions. Is there a current pension in place? Which will make the social security decision even more important to really coordinate that with any pension or any other guaranteed income stream.

Mark: Strategy is key, and so many things for retirement planning, but certainly in social security. And again, that’s why the podcast this week is really about mistakes for couples. Because again, we can kind of talk through this stuff in generalities and sometimes we just kind of barely touch on it, but there’s a lot of minutia to dive into, and that’s where an advisor really comes into play. And here’s a simple one guys, and I don’t know how often you guys encounter this, but I talked to many advisors who say, “It’s pretty surprising. People will come in for the first time. And they really haven’t truly talked about what they want to do with their actual time in retirement, what they want to actually do with retirement. And yeah, they say the general things, well, we want to travel, well, he wants to play golf or whatever, but it’s like, well, what does that actually look like? How much golf, how much travel? Where to? So on and so forth.” So that stuff really is important in what you guys do to help them design a plan for that.

Nick: Yeah. This is something that I’ve been really trying to focus on with people, with clients. And one of the things that I’ve found is that, for so many people that are retiring recently or very soon, looking back, one of the things that I’ve found is that many of them, even if we were to rewind five, six years ago, we’ve had this huge run-up in the market. So now you have people that have a lot more money in retirement than many of them thought that they would. And so some of the options that they have in some of the thought processes that they can have is less of a scarcity mindset and more of a thriving mindset and really trying to focus on things that they really want to do.

Nick: An example recently is a plan with clients that had retired within the last year. And so they’re plugging along and the plan looks really, really solid. And so, I really tried to start drilling down. It’s like “Now that you’ve been retired for a little while, now that you have a feeling of what it feels like, what are the things that you really want to do?” And then using planning to help them figure out if we can do it from a financial standpoint. So, one client wanted a larger property for their primary residence to be able to work on cars, that was the kind of hobby. And so it goes. We’ve kind of talked about the fact that the sharper they stay, the more engaged they stay, whether it’s hobbies, whether it’s volunteering, no matter what it is, as long as you’re staying engaged and sharp, their life is going to be probably longer realistically. And the brain’s not going to really rot away.

Nick: And so helping people dial into those things that they want to do, I think is probably one of the most enjoyable things on our side of the business, but it takes a while and quite a bit of repetition to really get them to visualize it and see it.

Mark: Yeah, indeed, because again, you might talk about some basic things you want to do, but you really start to have to dive in and dissect more because you got all this free time now. And of course you hear all of the funny stories, maybe the Mrs. Will say, “Find something else for him to do get him out of my house.”

John: One thing we’ve noticed is that when we do the planning, we’ll ask that question and one spouse will say something and the other one just gives a look like “What? I didn’t know that.”

Mark: First I’ve heard about it. And that’s the point of really even though they think maybe they’ve communicated this. And again, I think that’s really where great value comes into play from what you guys do, because you get to be this… Maybe that’s not always the most fun thing to be in the middle, but you get to be this mediator a little bit, or this sounding board where to that point, John, when somebody is like, “Wait a minute, this is the first time we’re talking about it.” Now they’re going to hash it out and you guys can help them walk through it. So hopefully it’s good in the end because they’re getting through to the details they really got to get to. So these are, again, are mistakes that couples can get themselves into when planning for retirement. Number four, not coordinating other accounts. So how important is it guys to include or incorporate coordination amongst his 401k and her IRA and so on and so forth?

John: So this is a really important one. And again, we sound like broken records, but this is important to the plan itself, as far as once both people are retired, and you’re looking at how much income is needed from the nest eggs, where is that money coming from? Whose accounts? And once that’s determined, that will dictate how that money should be invested. So this is really important and often overlooked if someone has not gone through a comprehensive plan, whether they’ve done it themselves or working with an advisor, but this could be a really big mistake if you haven’t coordinated this correctly.

Mark: And coordination is the key, getting on the same page is the key. I started off this podcast by joking about my wife and I are always in agreement because that’s how spouses are. Yeah. Right. So, at the end of the day, we tend to see differently in a couple of ways, opposites attract kind of thing. Right. So how often, and how much do you guys deal with managing the opposites in their personalities with risk? For example, that’s a big one, obviously. Because many, many times I think we’re going to see people where one person is like, “Hey, let’s take some risks, let’s take some chances.” And the other, one’s not so comfortable with that. And maybe they haven’t even been as honest as they might be in front of you guys saying, “You know what, now that we’re sitting here, I don’t want to take that much risk.” So you guys have to figure out a way to get them in a neutral, workable ground.

Nick: I think one of the ways to do that, that we found to be the most effective, is to try to double down on embracing the differences and letting them know that. And even if we go back through the plan and say, “Hey, look at these two decisions that you made, really help the plan in this way.” And then, these two decisions that the other spouse made really helped the plan in this way. So they compliment each other.

Nick: So, let’s focus on moving forward. What are the things that we do to earn the next step? And what I mean by that is, so there’s a couple of things, we try to continuously emphasize the fact that we don’t really care what their brother, sister, neighbor, dog walker/former coworker does. And then we’ll rattle off four or five things that are immediately different about their life then all of those people. And so they start to get that. And then as we further drill down and we’ll say, “Okay,” we’ll look it, “Hey, I know that you’re feeling a little bit concerned about the market, but remember that we’ve got two years of cash in the bank. So that’s your pass to be able to do X, Y, and Z.” And so almost just walking them through and helping them understand, like, “Hey, we’ve done this, and so we graduate to this level. We’ve done this, we graduate to this level.” And so we keep moving up the ladder and that all of these decisions are tied together and correlated.

Nick: And we try to emphasize the fact that, when we make these recommendations, it’s not like we make these recommendations for every single person that we work with, these recommendations are specific to them. And so I think that helping them understand that, to embrace those differences and to make sure that we’ve done things, we’ve put things in place. So maybe the spouse sets a little bit more aggressive, we point out, “Well, Hey, look it, we’ve got 15 to 20% of your assets in this Roth IRA. And this is where we’re taking the majority of the risk in your portfolio, because the upside is tax-free.” And then maybe the other spouse is more conservative and we say, “Hey, remember that you have your social security, you got a small pension. And we put this annuity in place with guaranteed income to satisfy that risk that we perceived.” And so all of these things are working together to try to balance it out. And usually it’s just kind of rehashing that over time. And then people start to get it.

Mark: Yes. The multiple pieces of the pie. So you’re going to have these different things in there that are going to hopefully help address multiple concerns. That’s why there’s a lot of financial products and vehicles out there to be used. And it’s not any one thing is the right fit, any one thing is the wrong fit. It’s a matter of finding the right vehicles for the right situation and then plugging and playing those in for the different person and their scenario. So that’s some places financial mistakes couples can get into. Of course you want to make sure you don’t get into those by working with a good advisor or a qualified team, like John and Nick and their team at PFG Private Wealth. So if you’d like to drop by the website and send us an email as well, pfgprivatewealth.com.

Mark: If you’ve got a question, we take those from time to time pfgprivatewealth.com is where you can go. All questions get answered, not all get asked on the podcast, but we do have one this week. So let’s see what we got for you guys, Christopher, he sent this one and he says, “Hey, John,” but I’m sure he means either one of you, but he says, “Hey, John, I’ll be turning 70 at the beginning of next year. And I’m getting annoyed about having to think about taking money out of my IRA, because I’m not going to need it. I’m sure you have some tips for circumventing this rule. What are they?”

John: Christopher, good question. So just to update you, the new RMD Required Minimum Distribution age is now 72 versus 70. So that was just seven and a half, that was just changed a couple of years back. But now that this comes up often, one of the things that we currently do for our clients is we’ll actually set up a individual taxable account where we’ll basically just, if there’s a 15, $20,000 RMD, that’s unneeded, we’ll just transfer that right into it. And go ahead and invest in exactly what they’re invested in before, because it really just needs to come out of the IRA, it can go right back into the market. Another strategy we’ve done is if a client is doing some charitable contributions, you can actually make charitable contributions from your IRA to your selected charity. And that will avoid taxation of that. And again, we always have our disclaimer, talk to your tax advisor if you look for tax advice, we’re not tax professionals, but that’s a really good strategy to use when you’re trying to avoid the RMD taxation.

Mark: Got you. Well. So the good news, Christopher, is you got a little bit more time. It’s 72 now. I love when people say, “There’s got to be ways around this,” there really isn’t, either don’t have an IRA or there’s not really a way around it. You’re going to have to give the government their share, which is why people have been doing things like conversions. There’ve been converting money out and doing so on and so forth so they can reduce the amount in there to avoid having to pay that by not having the account. But that’s really about the only way, correct?

Nick: Yeah. The conversions can be helpful to reduce the amount that’s going to have to be required to come out. But at the same time when the window is short and they realize that, “Hey, I’m just going to have to pay. I’m going to have to pay taxes on that money now when I convert versus, a portion of the amount that I would take out down the road.” Or that, it’s like, “Hey, well, you are going to pay tax on it, but still our plan’s recognizing the taxation and you could see here in the planning software, this is what your total tax obligation is going to be. And we can reinvest some of that money. So it may have less of an impact on, on you that you think.”

Nick: I think one of the things that we’ve seen is that obviously taxes are a hot button and nobody likes paying them. But I would say that probably 90% of the people that we interact with overestimate, or assume that they pay a lot more in taxes than they actually do. So that’s always a good exercise for us to remind people that in the scheme of things, many of them are paying a lot less than they realize anyway. So it’s one of those things where in theory sometimes the move can be good, but oftentimes in their mind it’s better than in actuality. And of course, just like anything else, we try to test that out through the planning.

Mark: Well, Christopher, so there’s some good news in there, like I said, there’s some more information for you. Obviously they showed a couple of ideas, but hang onto your hat. Because as of right now, stuff’s going through that we’re tying at the time we’re taping this. There’s more things to possibly be passed. So there could be some changes again, coming as well. So we’ll do an updated podcast on that once they go through or as we have more information, but for now, that’s going to wrap it up this week here on the podcast, Retirement Planning Redefined with John and Nick. Guys, thanks for hanging out as always. Appreciate your time. And folks, if you need some help, reach out to them at pfgprivatewealth.com, that’s pfgprivatewealth.com. Don’t forget to subscribe on Apple, Google, Spotify, iHeart, Stitcher, any of those platforms. You can certainly find it that way. You can find all that information at the website and subscribe from there, again, pfgprivatewealth.com, for John and Nick. I’m Mark. We’ll see you next time here on the podcast.