Getting married: 10 ways it can impact your retirement plan

If you’re due to walk down the aisle soon, congratulations! Getting married is an exciting milestone where two paths converge towards a shared future—including, one hopes, a shared retirement. To have and to hold, as the traditional wedding vows put it. Just remember, it’s important to have and hold your own property along the way—especially your retirement assets. You’ll need to rely on them throughout life’s journey.
Here are my 10 retirement planning tips for anyone tying the knot:
  1. Support each other to be self-supporting. Regardless of marital status, couples generally pay less in housing, food and utilities than singles, hopefully leaving you with more money to put towards saving and planning for your future. With your companion on hand to cushion you during times of financial hardship, you’re less likely to tap your retirement savings early.

    The fact is, you may need to support yourself for a decade or more during retirement.

    Women are more likely to outlive their spouse, and those who do live an additional 11.5 years, on average.1

    While many couples plan retirement together, projecting their joint income, others choose to do it separately. Whatever your approach, don’t lose sight of the bigger picture—your lifetime financial security.
  2. Decide if you need to make it legal. A lot of couples decide not to go the legal route, simply preferring a religious or commitment ceremony—perhaps they were married before and went through a painful, pricey or protracted divorce. Non-legal ceremonies allow you to throw a party with as much or as little fanfare as you wish, without the legal ties.

    However, there are undeniable benefits in making it legal—not least in terms of taxes. The Tax Cuts and Jobs Act of 2017 reduced the so-called marriage penalty, where couples earning a similar salary would end up in a higher tax bracket when they combined their incomes and filed their tax return jointly. Marriage can also favor partnerships where one half is earning significantly more than the other: Filing jointly, the lower-earning spouse can pull the higher-earning one down to a lower bracket, reducing their overall tax burden as a couple.
  3. Understand who owns what. It’s worth noting that the retirement portfolio you bring with you to a marriage doesn’t become the legal property of your spouse—for instance, the money you have in a 403(b) or the pension payments you were awarded in a divorce settlement. It’s only the retirement plan contributions and other assets you acquire while married that could be considered marital property. And that depends on whether you live in a common law or community property state. (If you have multiple homes, it’s your legal permanent address, or “domicile,” that counts). Most states operate under common law statutes, and in most common law states, your income and assets belong to you alone, as long as you keep it in separate accounts. In other words, your 401(k), 403(b) or IRA portfolios are completely yours, even the contributions you make to them while married. Property paid for with your income or personal funds also remain yours, provided the title to the property is put solely under your name. Meanwhile, in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), anything you acquire as a married person is automatically considered joint property.
  4. Consider creating a pre-nup. In community property states, your combined contributions to a 401(k) and other retirement accounts are usually split down the middle in case of a divorce. It’s reasonable to want your assets kept separate—especially if you’ve been through a divorce and don’t want to risk repeating the stress of dividing assets again. In such a situation, you can work with an attorney to create a pre-nuptial agreement, allowing you to keep your property partitioned. Attorney fees for a pre-nuptial agreement can cost $2,500 and up per person.2 Less expensive options exist online, with some services offering a flesh-and-blood lawyer to review your document.
  5. Take advantage of each other’s benefits. Work benefits packages vary widely from company to company. Yours might be lousy compared to your significant other’s. Getting married suddenly makes you eligible for their superior medical, dental, and other kinds of insurance. And (if you both agree that the assets you accumulate during your marriage are jointly owned), your spouse’s superior retirement benefits might also leave you better off in retirement than you would otherwise have been. For instance, they may be eligible for a more generous employer match than you, but haven’t been taking full advantage of it. Encouraging your better half to do so would benefit you both.
  6. Look at your Social Security prospects. If you were married before for at least 10 years, you can, at age 62, claim spousal benefits based on your ex’s Social Security record (provided 50% of their monthly benefit is greater than your own)—even if they remarry, pass away, or haven’t applied for the Social Security benefits they are entitled to. Remarrying disqualifies you from collecting on these benefits. You can still receive survivor’s benefits, though, as long as you remarry after the age of 60 (or 50, if disabled). Key point: Before planning your nuptials, carefully review your Social Security prospects—especially if you expect your ex-spouse of 10+ years to have a substantially higher benefit than you expect to get based on your work record. Remember, you can collect 50% of the amount of your spouse’s benefit as calculated at their full retirement age. Suppose that your ex is entitled to $2,500 per month, and based on your work record, you’re looking at $1,000 per month. At retirement, you would be automatically entitled to the higher amount, $1,250 ($2,500 x 0.5). Estimate your monthly benefits here . Social Security situation means it may not be worth it.
  7. Keep in mind spousal IRAs—If, for whatever reason, you’re not earning money of your own (maybe you’re raising a family, or taking care of an aging parent) being married would allow you to still save for retirement, in the form of a spousal IRA. An earning spouse can contribute to a spousal IRA on behalf of their non-earning husband or wife. The 2019 annual contribution limit is $6,000.
  8. Protect your heirs. Where children from a previous relationship are involved, consider setting up a qualified terminable interest property (QTIP) trust, which provides a surviving spouse with income from your own assets (retirement or otherwise)—but ultimately transfers those assets to your children or other chosen beneficiaries. This protects against the possibility that your estate will be left to your surviving spouse’s chosen heirs.
  9. Make sure you update your beneficiaries. In the event of your death, life insurance or retirement plan payments won’t automatically go to your new soul mate. The person or persons assigned as beneficiaries on your IRA or life insurance policy will get the money—even if that’s an ex-spouse whose name you forgot to remove. Therefore, it’s crucial you review the beneficiary information on all your old retirement accounts. Don’t forget to ensure all estate planning documentation is consistent with any pre-nuptial agreement you make.
  10. Think about your charitable legacy. For many of us, giving back is a meaningful part of our retirement plan. The good news is that getting hitched can potentially increase the amount you’re able to donate (and deduct) to a charity or donor-advised fund (DAF). For example, say you want to make a big donation of $10,000 to an emergency relief fund, but your adjusted gross income is only $10,000. You can only take a deduction for a cash charitable contribution totaling 60% of your adjusted gross income, meaning $6,000. On the other hand, your other half has an adjusted gross income of $90,000, so if you file jointly, you can contribute up to $60,000 (60% of your combined AGI, or $100,000).
     
I may have missed the bridal shower, but hopefully these tips provide a valuable pre-wedding gift. Since strong partnerships are made of strong individuals, striving for financial independence can improve your marriage as well as your money smarts.
1 “Income Insights: Gender Retirement Gap,” TIAA, 2016, https://www.tiaa.org/public/pdf/income_gender.pdf
2 “The Rise of the Millennial Prenup,” New York Times, July 2018, https://www.nytimes.com/2018/07/06/smarter-living/millennial-prenup-weddings-money.html
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April 19, 2019
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