Should Married Couples Maintain Joint or Separate Accounts In Preparing for Retirement?

Some married couples prefer to keep their finances separate during their working years. For example, one in five married keep separate bank accounts, and a third maintain their own credit cards. These couples often discover that this arrangement works less well once they move into retirement.

It is highly unlikely that both spouses will have equal retirement incomes or expenses, but they may have different ideas about what spending looks like once they stop working. Retiring couples should consider how their respective income sources, likely health care costs, insurance needs, and proposed discretionary spending will affect how they manage their finances.

The tax treatment of each spouses’ income may make it advantageous to draw from one income source over another. If one spouse has access to after-tax funds, from a Roth IRA, for example, it might be better to draw down that account first, and let the other’s traditional IRA continue to grow tax-deferred. Couples may want to coordinate when each will begin collecting Social Security benefits as well.

If one or both spouses was previously divorced, they may have been awarded a portion of their former spouse’s retirement. A Qualified Domestic Relations Order (or QDRO) may have been necessary to divide that asset. If this situation applies to you, and you are not sure that a QDRO was prepared, it probably wasn’t, and you should consult an attorney who specializes in QDROs right away.

Out of pocket health care costs are likely to increase for both parties over time, but not always equally. A retiring couple should determine the amount of their Medicare and any private health care premiums, estimate out of pocket costs, and discuss how these expenses will be paid.

Keeping separate finances may make life insurance or long-term care insurance more important for some. One spouse may be unable to bear the financial burden when the other has increased expenses, or is no longer contributing. Couples should take this “survivor-income stress test” and consider how the death of one spouse would affect the ability of the other to pay expenses.

Many people look forward to travelling more during their retirement, but however a couple chooses to spend their increased free time, how the expenses are to be divided should not be overlooked. The discussion on this issue, as well as the others noted above, is best had before retirement, not after.

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