While money issues can often be the “elephant in the room” for couples, it is a well-known fact that sound financial management can directly contribute to a successful, long-lasting relationship. Long Term Financial Planning is one area that can smooth a couple’s relationship. Let’s face it, if there is sufficient money to meet the family’s needs, then there is one less thing to argue about. Many couples find themselves arguing over money, when they could avoid the entire issue by sitting down with a financial planner and establishing a sound plan to deal with their daily expenses as well as save sufficiently for their retirement.
Once both sides understand the fundamentals of a sound financial plan and understand what the plan will give them when they retire, there will be much less stress on the relationship. A common goal for a team to aim for goes a long way to establishing and solidifying a relationship. Both partners must be involved and both partners must not only understand the process, they must have the same goals and objectives. If not, well there may be more basic issues to address which will not be discussing in this blog.
Once you have made the decision to save for retirement, have a set of goals and a plan of how you will get there, it is time to develop and implement some of the tactics that will enable your plan and goals to be met.
Long Term Financial Planning – How to Get Started
To begin the process of easing the financial stresses of managing a long-term relationship, consider the following points:
Set a Date – Set a “date” to discuss your financial future
- While it may not sound as romantic as a four-course candlelit dinner, meeting with your financial planner will help couples look at the big financial picture
- Best of all, working with a financial planner does not have to cost you a cent
- Develop your combined goals and plans. i.e. when do you want to retire, where would you like to live, what do you want to do when you retire. Focus on general terms, since your plans may change as you get closer to retirement.
- These plans and goals should be discussed before you meet with your financial planner. This way you will be prepared for the discussion and although you may need to make some adjustments after your planner gives you additional information, you will get much more out of the first session.
Discuss Your Plans with a Financial Adviser
- Be prepared when you visit your financial adviser
- Have all of your goals and plans ready to discuss
- Have an inventory of your current investments, income and expenses
- Both husband and wife should attend this meeting, in fact both should attend all meetings to ensure that they are not only fully informed, but have an opportunity to contribute as well.
- One of the major issues with financial planning is for one member to delegate the planning and execution to the other spouse and then have no clue as to whether they will have enough money or not.
Discuss your investment Risk Tolerance
- Your adviser should discuss your risk tolerance
- Risk tolerance is used to help you decide what investments to focus on
- Many people cannot deal with high risk stocks in case they lose their value
- The basic rule is that if you lie awake at night worrying about your investments, then you are invested in investments that are too risky for your risk tolerance
- Another rule is that your risk tolerance should decrease with age since you have less time to make up for losses
- Your adviser will recommend a plan for your investment and show you what you need to save to meet all of your plans and goals
Start Saving Early
Note that the earlier you start saving, the better the chance of achieving your goals and retiring early. Someone at age 25 has a better chance than someone who begins planning and saving at age 45 for example.
We would be remiss, if the issue of diversity is not mentioned as part of your retirement plan. Whatever you invest in, never place all of your investments into one investment. Regardless of how great it is, if this investment were to go south, i.e. significantly decrease in value, then your retirement plan would be in serious jeopardy. Spread your investments across blue chip investments that match your risk tolerance.
We talked about spousal RRSP’s earlier. A spousal RRSP will help you to split income when the money is finally withdrawn from the RRSP. At the same time, the higher income spouse will maximize his or her advantage from an income tax perspective.
Spousal RRSPs are an excellent way for loved ones, married or common law, to plan for their financial futures. The benefits of income splitting and the savings couples can realize from it will not only set them up for financial success, but will also help to ease the stress that finances can put on a relationship over the long term.
A Spousal RRSP allows couples to take advantage of income splitting, meaning the higher income earner contributes money to the RRSP of the lower income earner with the end goal of both individuals having more equal incomes upon retirement. The higher income earner deducts the RRSP contribution even though he or she is contributing to a spousal RRSP. This system offers many rewards, including the potential for larger tax refunds and a greater return on retirement savings for each individual.
Maximize Benefits – Gain Full Benefits of Spousal RRSPs
– By using a Spousal RRSP, couples can realize the full potential of a combined income when it comes to saving for their retirement