Many couples have separate bank accounts, with a shared or communal account to pay household needs and expenses. Both may contribute equally to the account, but still maintain individual checking and saving accounts. With a second marriage or both working outside the home, an arrangement like this is common. But when it comes to retirement, how does having separate accounts affect your retirement?
For a relationship to be successful, it will be important to disclose the existence of such accounts. It’s your money and you can spend it as you please. Although being in partnership means you have, hopefully, agreed on spending limits (the amount either can spend without discussing with each other) or spending money you would not want them to know about. Open communication about household finances also means being able to explain (if they ask) why you decided to spend money on a particular item or activity. This goes both ways. In an emergency, you will also want to discuss the distribution from each account to cover the gap.
Prior to retirement, conduct an inventory of all assets and build out a financial plan, determining how much you can spend monthly without running out of money. Then determine the contribution amounts going into the general checking account. It’s important to be honest about how much each of you have saved. Will one partner need to start contributing more? Most importantly, when you and your partner retire, how will the money in those accounts be handled? Will it be similar to the arrangement you have now or will you combine the accounts and allow equal access? These discussions are important because how money is handled during retirement may be vastly different, especially as you age.
What if there is a disparity? One person saved more than the other, or their is an age gap and your spouse wants to retire before you or vice versa. Situations like this can put a strain on your relationship and your retirement savings. Again, open conversation is key and sometimes the help of a third party, your financial advisor, can help bridge difficult conversations and address shortfalls. Throughout your marriage you may have held separate accounts, retirement is now the time to re-evaluate your cashflow needs and simplify your life.
Retiring with separate finances allows room for disparity. This is the perfect time to review your assets and expenses to envision your ideal future. The key is to share your vision with each other and discuss honestly your fears, desires and goals. With open communication and maybe the help of your financial advisory, you can begin to set financial expectations and household chore assignments. This is wonderful time to discover your values and dreams, design a plan that works for you, make good on that plan through implementation, and have those assets grow for confidence and peace of mind for your productive future. Sounds fantastic!