A divide-and-conquer approach to managing a household seems essential during COVID-19. For married and partnered couples with kids, juggling work (or the anxiety of a layoff), home schooling and the emotional and physical challenges of shelter-in-home is insanely demanding.
Relying on one’s significant other to handle X and Y while you nail down A and B makes tremendous sense. But that can be a bad long-term strategy if it extends to financial decisions. Women need to be an active participant in all the long-term financial decisions.
This isn’t male-bashing. Just plain demographics. Men die earlier, on average. So whether it’s widowhood, divorce or being lifelong single, far more women live alone during old age. So, at some point women will be in charge, even if there is a financial adviser involved.
A new survey of 50,000 households from Hearts & Wallets, a data analytics firm, suggests trouble ahead: 56% of women say they “share responsibility” for spending and investing decisions; another 31% say they’re “primarily responsible.” But only 5% of married/partnered men say their spouse/partner is in charge of the money decisions, and only 40% say the responsibility is shared.
Without exploring any couple’s dynamics, the bottom line is that women need to step up and become, at a minimum, financially informed. If you want your spouse/partner to take the lead, fine. But that’s not license to be uninformed. Decisions being made today — life insurance, investing, debt repayment — all impact your future life.
Do you really want to have it land in your lap if you are widowed or divorced later in life? That’s an awfully stressful time to take on learning about financial matters.
What women (and men) need to know:
- How many years of living costs will be covered by life insurance? If you are dependent on each other’s income, you need life insurance. If you have kids who have yet to launch, same thing. Good news: Term life insurance is incredibly affordable. Make sure you have enough.
- What’s your safety cushion look like? Chances are you know this, especially if your family has suffered a layoff or reduced hours. If your household is under financial stress, building up your emergency cash savings might not be practical. For now. But you can plan for how to make it a priority once your household is back on its financial feet.
- Will you be able to wait for the highest earner to claim Social Security at age 70? It’s crucial to focus on the fact that, when one spouse dies, the other spouse is entitled to just one Social Security benefit: theirs or their spouse’s, whichever is higher. So, the higher earner should time their retirement to max out benefits, preferably waiting until age 70, so the surviving spouse has the highest-possible income. The benefit received at age 70 will be 76% higher than the benefit if you start at age 62.
- What percentage of your spouse’s pension will you be entitled to? OK, pensions are rare for private-sector workers these days, but many 50- and 60-somethings may have one from earlier in their career. And pensions are still prevalent in public sector jobs.
Most pensions require the retiree to choose a payout plan: pay based on the employee’s lifespan only, or “joint and survivor,” where the surviving spouse continues to get a benefit. Be careful. The employee-life-only can be tempting, as it means a higher initial payment. But then it disappears. It’s likely you will want to choose a “joint and survivor” benefit.
If you purchase immediate annuities to provide extra guaranteed income, the same question applies. If the surviving spouse will need that income, then you want to choose a 100% joint and survivor option, not a 50% benefit, or a 75% benefit, and certainly not the life-only option.
- Will the mortgage be paid off before you retire? There are plenty of reasons to make this a goal, sleep being one of the big ones. Are you on the same page about this? Have you refinanced so often that you are now looking at still owing payments into your 70s? If you plan to make a move when you retire, that might not be an issue, but it’s best to hash that out now, and plan accordingly.
- How’s the retirement money invested (and where)? A recent survey from the Transamerica Center for Retirement Studies reported that less than one-third of spouses were very familiar with their spouse’s retirement account. Given the odds that money — and the decisions being made with that money — are going to help fund your retirement security as well, doesn’t it make sense to get a bit more up to speed?
