Financial Planning for Couples

Things to consider when there are two of you.

If you are in a committed relationship, as a couple you probably rely on one another to work as a team. It’s a partnership, and that teamwork is also important when it comes to planning your financial future. With the two of you working together—especially if you’re combining your incomes and savings—it may be possible to reach your financial goals faster.

But just like most other things in life, there are no guarantees. Unexpected illnesses and accidents can and do happen, so it is necessary to plan ahead. Doing so can help provide a financial safety net for a surviving spouse or partner, as well as a detailed plan that outlines what to anticipate going forward.

Preparing for the “What If” Scenarios

There are a myriad of “what ifs” in life, and many of these can impact both you and your loved ones’ financial security. These can include both happy and sad events such as m arriage or divorce, retirement or a job loss, a loved one’s i llness or death, or the need for long-term care.

Because we don’t know when (or even if) most of these events will occur, though, it would be prudent to “hope for the best but plan for the worst.” Otherwise, you or your surviving partner could end up spending down your nest egg and potentially incurring debt just to get by.

Even if something happens when you are still young, the financial impact could intensify over time due to lost savings (or even debt), which in turn can negatively impact your future retirement income and other financial objectives.

If you are developing a financial or retirement plan as a couple, it is important to factor in several potential “what ifs.” While it is tempting to imagine that you will both work hard, save money, invest wisely, live to age 95, and die at the same time, the reality is that things don’t always go as we had hoped. And as difficult as it is to imagine, it is important to anticipate what would happen if one of you passes away prematurely—especially if that were to happen before retirement.

Keep the following in mind as the two of you create a long-term plan, and ask your financial planner to model the scenarios that would apply to you:

One of you dies prior to retirement – There are some important scenarios you will have ideally planned for, such as:

• What will happen to any minor children

• What plans are in place to cover your children’s college education

• Will the deceased’s lost income be replaced so that the survivor can carry on without facing undue financial hardship?

• Are there (or will there be) enough savings for the surviving individual to have a secure retirement?

• Will the surviving spouse or partner be eligible for Social Security survivor’s benefits?

These common questions—as well as other issues that may be unique to your situation—can and should be answered with the help of an experienced financial professional who can guide you along the way.

One of you must survive several years in retirement without the other’s income – If one of you passes away early in retirement, it could cause substantial financial difficulty for the survivor, both in terms of income and expenses. While some things remain the same regardless of when a spouse or partner passes away, there are other areas that could require different strategies if the passing occurs after retiring.

For example, for an unmarried couple, the decedent’s Social Security income stops, which in turn can cause a sizable income gap going forward for the remaining individual. If a couple is married, the surviving spouse is allowed to keep the bigger of the two Social Security checks, but not both. So in either case, income will be reduced.

Unfortunately, though, many of your household expenses will remain the same, such as the monthly rent or mortgage, property taxes, home repair costs, and utility bills.

In Texas, individuals who are age 65 or older may qualify for a $10,000 homestead exemption to reduce property taxes. But what if a surviving spouse or partner is much younger than 65?

There can even be areas where the survivor may end up paying more, rather than less after becoming “suddenly single.” One example is the cost of Medicare coverage. The income-related monthly adjustment amount, or IRMAA, is a surcharge that high-income individuals may have to pay in addition to their Medicare Part B (doctor’s services) and Part D (prescription drug coverage) premiums. The Social Security Administration makes the determination about whether you are subject to IRMAA based on the income that you reported on your tax return two years prior. So, for instance, your Medicare Part B and Part D premiums in 2023 would be based upon your income in 2021.

The added Medicare Part B premium surcharges in 2023 can range from an extra $65.90 per month to an extra $395.60 per month per person, over and above the standard monthly premium of $164.90. That can make a significant difference in the amount you pay for this coverage.

Many people don’t realize that if they are married and their spouse passes away, the survivor could actually end up having to pay more in premiums going forward. This is often referred to as the “widow(er)’s penalty.” One reason for this higher cost has to do with the surviving spouse filing their future tax return as “single” rather than “married filing jointly.”

As an example, Chris and Jesse are married. In 2021, they are both 72 years old, and the couple has a total an nual modified adjusted gross income of $182,000. With the standard deduction of $25,100 that year, the couple’s total taxable income is $156,900 in 2021. Therefore, they paid federal income tax of $26,015. However, if Chris had passed away in 2020, then Jesse would have filed taxes in 2021 as a single individ ual—and also would have owed tax at a higher rate.

In this case, Jesse would have lost Chris’s Social Security income. (For the sake of this example, let’s say that this benefit was $11,000 for the year.) But even with a reduced income of $171,000 (versus $182,000 if Chris was still alive), Jesse would only be allowed to take a standard deduction of $12,550 rather than the $25,100 deduction if Chris were still alive. This, in turn, leaves Jesse paying taxes on a taxable income of $158,450—more than $1,500 higher than what Jesse and Chris together would have been taxed on if both were still living.

But the bad news for Jesse doesn’t stop there. That’s because as a single tax filer now, Jesse will also have to pay a much higher premium for Medicare Parts B and D in 2023.

To view the 2023 Medicare Part B premium surcharge amounts, go to the Centers for Medicare & Medicaid Services here: tinyurl.com/4bwxbcxt.

Planning to Protect Each Other

There can be many “moving parts” involved in financial and retirement planning for couples. Your financialplanning professional needs to look at the entire picture, so your strategies can facilitate your ideal scenario as well as a “Plan B” if life doesn’t go the way you had planned.

A qualified advisor who is wellversed in planning for the unique issues faced by LGBTQ couples can help you addess issues that are often overlooked in traditional planning strategies.

Grace S. Yung, CFP ®, is a Certified finanCial P lanner practitioner with experience in helping LGBTQ individuals, domestic partners, and families plan and manage their finances since 1994. She is the managing director at Midtown Financial Group, LLC, in Houston. Member FINRA / SIPC. For more information, visit: www.midtownfg.com

By DARYL SHORTER MD