Ten Financial Tips for the Newlyweds
A few of my children’s friends were married recently. While I have written blog posts on financial tips for recent college graduates and summer jobs, this is my first post focused on newlyweds. Below I list ten financial topics to consider now that you are married. For those old enough to remember THE NEWLYWED GAME, these topics likely wouldn’t have made great questions on the show, but I bet some of your discussions may be just as surprising!
#1 – Communicate
Ok, not directly a financial topic, but as a happily married man of 31 years, a great one to start with. The tougher the topic – financial and otherwise - the more important it is to communicate. Don’t let topics fester.
#2 – Individual vs. Joint accounts
Up to now any financial accounts were likely owned only by you. That must continue for some accounts like 401ks, IRAs, HSAs, 529s and most insurance and annuity products (will discuss beneficiaries later). However, bank and brokerage accounts can be titled as individual or jointly held. A joint account allows both to be listed as equal owners with full authority and rights. It also adds simplicity by having only one account to receive payroll deposits and make regular monthly payments - and reinforces the combined effort of both working together. You simply open a new joint account and transfer assets in with no tax or gifting implications among spouses.
#3 – Combined or separate finances
Most couples will approach their finances on a combined basis. After all, they joined in marriage to build a life together, each contributing their unique selves to the effort. Some couples may have similar financial contributions and others could differ substantially. The contribution of each could also vary at different stages of life – advanced schooling, having children, starting own business (thanks Meg and kids for early PVWM sacrifices … and continued time sacrifice!). There may also be different debt obligations each bring to the marriage. Approaching finances on a combined basis allows for both to work toward common goals as well as support each other’s individual ones without resentment of a “yours vs. mine” mentality; “ours” is more powerful. For those couples who choose to keep their finances separate, be sure to discuss how common costs will be split and if / when / how the other’s savings may be used to cover future needs if the other is unable. Whichever approach is taken, trust and communication is needed so there is no resentment on saving or spending at levels different than the other thinks is “appropriate”.
#4 – Preparing a “combined finances budget”
So what is “appropriate” spending and what categories are more important? News flash – you will have different opinions here. The key is to express what things are important for you and respect the other’s needs, even if you can’t relate. Obviously it must fit within the overall budget but leave enough financial oxygen for each to continue their special thing, without turning it into a “spending match competition” which can spiral downwards quickly. And while one may take the lead on paying the bills, I highly recommend both have at least a base understanding. Once a budget is established, be sure to periodically monitor actual spending relative to the budget. Let technology do the heavy lifting for you. We offer a spending tracking tool for our clients. Two of many retail apps available for a small fee (an investment!) to consider are Simplifi by Quicken and YNAB (You Need A Budget). See my June 2023 blog post “Financial Framework For Early Career” on living within your means and tips on setting a budget.
#5 – Beneficiary Changes
I mentioned earlier there are some accounts that must be owned by one person - 401ks, IRAs, HSAs, 529s, life insurance, annuities. You can list a beneficiary which specifies who will receive the money when you die. You likely specified a beneficiary when you opened these accounts. Be sure to update all these accounts to your spouse. Don’t forget about employer provided life insurance or pension plans. Your parents or siblings who are likely listed now will understand.
#6 – Update Employer Benefits
You are allowed to choose employer benefits when you first start working, during subsequent annual enrollment … and … after a major life event such as marriage. You typically only have 30 days after the event so move quickly. It is a good opportunity to pick the better of each employer’s health benefits (maybe enroll in a Health Savings Account eligible plan) and do a redo on any benefit changes – like making sure you sign up for long-term disability insurance. As a quick aside, just because you are married doesn’t mean you need extra life insurance unless you have children or a large debt that a single survivor couldn’t handle after using existing assets of the other. See my October 2023 blog post “It’s Happening… Annual Benefits Enrollment” on some considerations of employee benefits selection.
#7 – Tax Return – Married Filing Jointly
I’m not an accountant but I know tax planning very well. I will focus on the differences between filing as Single vs. Married Filing Jointly, not Married Filing Separately. Key point - if you are married on December 31, you can file jointly for the entire year. The most obvious difference will be using different tax brackets, basically doubling the amount where the next marginal tax rate kicks in. If both earn similar income you may not notice much difference but if incomes vary, the higher earner will be able to use up a portion of a lower bracket from the spouse. You will also get a nice bump in the standard deduction, up to $27,700 for 2023. Unfortunately the “state and local tax – SALT” remains capped at $10,000 whether single or joint filer so if you itemized deductions in the past, don’t be surprised if start using the standard deduction. One not so obvious impact is the new income levels for IRA eligibility for both direct Roth contributions and deductibility for Traditional – the latter depends on whether one or both have 401k plans at work. If you find your joint tax bracket fell vs. when filed as Single, also consider a partial Roth conversion to fill that lower bracket. See my May 2023 blog post “Your 2022 Tax Return is Talking – LISTEN!” for a very nice overview including 2023 tax tables for Single and Joint filers.
#8 – Spousal IRA
This is a gem that is often overlooked. The first strategy involves a great way to continue funding the IRA of one spouse by referencing the other’s “eligible taxable compensation”, which is required to contribute to 401ks and IRAs. If there is extra income, or even excess taxable savings, you can use the compensation of one to satisfy eligibility of contributions for both. This is especially useful if one spouse is not working or working part-time. The other strategy this may open up is the potential for two backdoor Roth contributions if retirement savings to date for both have been in 401ks and there are no Traditional IRA balances.
#9 – Legal Documents
This is for old people like my parents, right? Wrong. I am not an attorney, but while you may not have a complex estate plan requiring various trust documents, everyone should have four basic legal documents:
- Will – specify where non-beneficiary accounts go; also name legal guardian for children
- Health Care Power of Attorney – specify who makes medical decisions if alive but unable
- Property Power of Attorney – specify who makes financial decisions if alive but unable
- Living Will – specify what life-saving measures you want taken on your behalf
The beneficiary changes discussed above is also a very important part of your estate plan because beneficiary designations overrule a Will. Keep them current!
#10 – View investment accounts on combined basis
This last topic captures three different components.
Asset allocation – The mix of equity, bonds, alternatives and cash in your portfolio is called “asset allocation”. Hopefully you know your approximate allocation – ideally across all accounts combined. Now you can include both your various accounts and rebalance accordingly (assuming combined finances). Similar to financial oxygen for your budget, I recommend allowing some risk oxygen if one or both enjoys individual stock or theme investing – maybe up to a 10% allocation.
Risk tolerance – You each will have different risk tolerances. It is important to know the tolerance of each and not take too much – or too little – risk in the portfolio. Offering enough safety oxygen for the less risk tolerant may be warranted. However, oftentimes knowing a reserve fund is set aside in safe investments allows the appropriate risk to be taken on the remainder of the portfolio.
Custodian viewing – Full transparency is helpful with communication and something as simple as viewing all the accounts is a great place to start. We use data aggregation tools for our clients to update account values from various sources. At a minimum, it may be helpful to consolidate your accounts (current 401ks must remain) at one custodian (Schwab, Fidelity, IBKR, Vanguard, etc.) but also request the ability to view the other’s account with your login.
There you have it - ten financial tips for the newlyweds to discuss. It doesn’t have to all be at once and not all of them will be discussed over a candlelit dinner. But discussing these topics will start you down the path of marital financial bliss - or at least establish a solid foundation. The rest is up to you… and remember to communicate!
Posted by Kirk, a fee-only financial advisor who looks at your complete financial picture through the lens of a multi-disciplined, credentialed professional. www.pvwealthmgt.com