It’s your second marriage or you married late in life. Keeping your finances separate seemed the sensible thing to do. The basic costs such as the mortgage, utilities, taxes and insurances were split 50/50. You took care of your own personal needs and lifestyle costs. You have your own savings and retirement accounts.
This seems to be working perfectly fine and you assume it will continue on even into retirement. You have your pension from your 30 years of service that will cover your entire half of the basic costs. In addition, you aggressively saved over the years. When the mortgage was paid your portion of the payments was redirected right into your RRSP. You did everything right with the help of your road map created many moons ago by your financial advisor. Retirement planning has never been a worry for you.
Then the day comes when you decide it is time to take it easy and either slow down at work or stop working permanently. Your dream was to start traveling with your spouse, taking up hobbies and entertaining more. This ‘retirement’ phase looks to be quite eventful and worry free due to your years of planning and saving.
However, it dawns on you one day that you and hubby have never actually discussed retirement and what possibilities lay ahead for you both. So one day you approach them and are shocked to learn that their version of ‘retirement’ is quite different from yours. What do you do then?
Retirement Planning With Separate Accounts
Your goal was to stay in the family house as long as possible. Maybe even do Reno’s to accommodate future health issues – anything to avoid the care home life. You also assumed costs in retirement will increase as you are no longer working 50 to 70 hours a week and then going home and zoning out in front of the TV. You now have a lot of time on your hands to fill and you plan on spending whatever it takes to make your days interesting.
Unfortunately your spouse has never planned for retirement. This is marriage number two for them. They lost half their assets and half their pension 10 years ago as an aftermath of the divorce. Trying to pay child support and half their current living costs has left very little extra for savings. If anything, they have racked up their line of credit and now have a lot of debt and very little RRSP’s. Retirement has never been on the radar even though they are entering their late fifties now. They just assumed they would continue to work until health issues kicked in and then sell the home, down size and hopefully have a bit of money from the sale for some lifestyle costs.
However, you want to retire at age 57 when your full unreduced pension kicks in. You now find out that your spouse is planning on working until they drop dead. So what do you do?
Open the Retirement Planning Conversation
Well this is where a lot of frank conversation needs to take place and a lot of compromises and sacrifices. A ‘no blame’ open discussion on what your dreams and expectations are is important.
Start by writing down all your fixed retirement costs. Now tally up each of your ‘guaranteed’ pension income. Can you each pay half your costs with your pension income? If you can- GREAT! Technically you can retire. The basics are covered. If one of you can’t pay your share then compromise needs to take place.
• Are you willing to downsize the home freeing up some cash for your partner?
• Are you willing to pay more than half your share of the basic costs if it keeps you in the home?
• What if your partner works part-time? Would that cover his shortfall?
If retiring sooner than later is important to you and making that transition with your partner is equally important then you will need to make some real sacrifices if his pension income and savings doesn’t cover his share of the costs.
Next you both need to tackle your individual bucket lists. What do you want to do in your retirement? What dreams and aspirations do you have? Or how do you want to fill your days. If as a couple you have figured out how to pay the basic costs you then need to discuss the “extras”.
Lifestyle costs can get expensive. They can add anywhere from $5,000 to $50,000 to your budget. If your spouse is challenged just to make their half of the basic or fixed costs then the “extras” might really be unachievable. What then? Do you have the pension income and savings to fund both your activities? Are you willing to pay more than your fair share and again its all about compromise and sacrifices?
If you really resent paying the bulk of your retirement expenses you will have to either except that retirement will be a ‘solo’ journey for you. And you also may have to accept some changes you didn’t want to make such as selling the home, relocating to a more affordable city and having less of the extras.
There is no right or wrong way to live in retirement or decisions how to fund it between spouses. It is whatever agreement each couple has decided works best for them. Often in second marriages people keep their finances separate due to their negative and costly past experiences and because they want to ensure hefty portions of their savings passes on to their children (ensure the Will is properly set up for this). Sometimes couples keep their finances separate because they married late in life and have a hard time compromising or sharing their hard earned monies. Again neither is a right or wrong but you need to discuss your expectations and dreams so when retirement comes you are not completely floored to learn you will be taking the journey on your own.