Hosted by Kevin J. Zywna, CFP® and Allison K. Dubreuil, CFP®
Allison Dubreuil, Wealthway Financial Advisors: Well, in the spirit of Valentine’s Day, we thought we would talk about money and marriage tonight. Money is, I think, the number one issue that couples fight about and the second leading cause for divorce. So, we wanted to put it out in the open tonight talk about how to have a healthy relationship and work through money issues with your significant other.
Kevin Zywna, Wealthway Financial Advisors: Yes, to have a healthy marriage, it’s important to have a healthy financial relationship with your spouse. And it is very common that, at least when it comes to the money aspects of coupling, opposites do tend to attract. It is I say more common that there is a spender and a saver. And then there is or there’s maybe a detail oriented penny pincher, and then somebody who’s kind of just like, seat of the pants and it’ll all work out. There’s some that care more about the finances than others. Some people don’t want anything to do it and leave all the decision making to the other person which can work but you must also communicate effectively. So, there’s a lot of complicated dynamics that flow through a relationship because of money. If you have a healthy couple relationship with money, then chances are you’re going to have a healthy relationship in general.
Allison Dubreuil, Wealthway Financial Advisors: Yes. And so, we want to first talk about how to have those conversations before you’re married. And then we’ll get into how to best navigate these differences and strategies while you’re married.
Kevin Zywna, Wealthway Financial Advisors: Yes, if you can lay the groundwork before you get married, then that usually goes a long way to smoothing out any differences over the long run. Better to get them out of the way upfront rather than find out after the fact. So, we’ve got a few tips on that. And then we’ll go into what you do after you get married. But before we do that, we have a caller on the line. And as promised, when we get a call, we’ll break into that. We’re going to go up to Gloucester speak with Kerry, good evening, Kerry, you’re on Dollars & Common Sense.
Caller: I have a tangibles, I have also my stock portfolio. Then there’s obviously the fund, and I also have a house. Do you think that there’s going to be a real estate crash or some kind of economic crash? I was wondering if there was, I’m thinking it might last for like, two or three years. But with folding of globalism and the aging of populations, I was told that we might be able to expect a doubling of our manufacturing capacity and doubling of our farming capacity. Because we’ll be supplying ourselves with everything from now on. But I’m wondering, do you see a crash coming? And do you think silver would go up as well?
Kevin Zywna, Wealthway Financial Advisors: Okay, Kerry Well, there’s a lot to dissect. I think globally, what you’re asking is, is there going to be a major economic crisis that we’re going to have to contend with in the near future? I think the answer to that is no. I think there’s concern around elevated inflation levels. That is true. And that is real. And that is happening now. But it’s also known, and it’s also being dealt with. It’s being dealt with because the Fed is beginning to raise interest rates. Rising interest rates are needed to tamp down on economic activity, which will help bring down the elevated inflation levels. So, when you have a known solvable problem, those things tend to get solved eventually. It was true in 2022 that we had an official bear market in the US stock exchange and lease on the S&P 500 defined as a 20% or greater decline from some peak to a trough. That happened a couple times throughout 2022. So, in as much as we would consider that a routine bear market happens on average once every six to seven years. We wouldn’t consider that a crisis, we would consider that a temporary nuisance or disappointment that can be managed through, especially if you’re still accumulating assets. So, I don’t see where there’s any big, hugely negative economic forces at work here to create any sort of major crisis in the next three to five years. I think that the housing market does need to cool off a little bit. Housing prices should decline a little bit. We’re starting to see some of that because of the rise in mortgage rates that’s starting to reduce demand for housing. But that’s a modest price decline. We had a good run with housing for at least five years, maybe 10 years. It would be natural to have a little bit of pullback and new first time homebuyers would certainly welcome that. So, we’re pretty optimistic for the next three to five years. What that would do to silver, I’m not really sure? That’s not really an asset class that we would consider as part of a portfolio. Was that helpful?
Caller: It helps, it helps. Thank you.
Kevin Zywna, Wealthway Financial Advisors: All right, Kerry, thanks for the call. We appreciate it.
Discuss Finances Before Marriage
Kevin Zywna, Wealthway Financial Advisors: Tonight, we’re talking about marriage and money, how you can be happy and successful with both.
Allison Dubreuil, Wealthway Financial Advisors: Yes, so if you are thinking about walking down the aisle and getting married, there are a few things you could do to set your marriage off on the right foot from a financial perspective. First of all, many couples don’t even talk about money before marriage. I guess you’re just all caught up in the romance of it all. And maybe money’s taboo, or you just don’t think that you’ll ever have any problems. So, you don’t feel the need to talk about money in the early days. But really, not talking about money before getting married is risky. I’ll just call it risky. Because you don’t know what the other person has up their sleeve. Could be debt, could be assets, you don’t know. And you don’t know their thoughts and attitudes around money. What they value and how they manage it. So, it’s best to go in with your eyes open and have some deep conversations before heading down the aisle.
Kevin Zywna, Wealthway Financial Advisors: Yes, I can tell you as somebody who has spent my entire adult professional life in the money business, I don’t know if there is another topic, another area of a person’s life, that drives more emotion than money. People’s feelings towards money, what they use money for, how they value money, or if they don’t value money. It’s tied into so many other emotions; power, control, independence, freedom, comfort. All of that is intrinsically tied up with money. And so, if you are not aligned with your money philosophies, you most likely won’t be aligned in other emotional areas of your life as well. And it will eventually come out.
Allison Dubreuil, Wealthway Financial Advisors: So, everybody has money mindset, you know how you think about money and how you make your spending decision. So, it’s a good idea to talk about that. Talk about what your basic needs are. What you consider to be a splurge or what’s important to you, and what your habits are. Especially if you have debt, you’re going to want to come clean about any debt before walking down the aisle and getting married. You probably want to share an entire balance sheet with all of your finances before you get married.
Kevin Zywna, Wealthway Financial Advisors: Yes, because your debt will in one way or the other become your partners. I mean, you’ll both have to work to pay it off, most likely. So, if that’s an issue, you need to disclose it so that you can go in with your eyes wide open.
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Should You Combine Financial Accounts Or Keep Them Separate?
Allison Dubreuil, Wealthway Financial Advisors: Now, to combine accounts or not to combine, that is always the big question. There’s a lot of different ways you can manage finances together as a couple. We see it done a lot of different ways. But keeping your finances separate can create problems down the road, long term with the way you think about your money as mine and his, or hers versus thinking about it as ours. So, we generally like the idea of combining finances and having joint household finances. Then maybe keeping a little bit of separate money on the side for each of you for personal spending that you don’t have to ask or answer any questions about. Yes, so you’re going to want to have a conversation before you get married about how you want to handle your finances going forward, whether it’s going to be jointly or separately. We can dig into that a little bit more later.
One Joint Account And Two Individual Accounts
Kevin Zywna, Wealthway Financial Advisors: Yes, the best arrangement that we’ve seen if you’re relatively young and your first marriage starting out with a clean slate is three bank accounts, his account, her account, and our account or the joint account. The majority of all household income basically both paychecks if you’re both working, go into the joint account. Nowadays electronically link to the husband’s individual account and the wife’s individual account and give yourself each a little allowance every week or two weeks or once a month, or however you do it. The joint account is for communal expenditures for the house and for the family and for joint future. The smaller individual accounts are for discretionary spending that you don’t have to ask the other party’s permission for. Like Allison was saying, if you happen to like expensive cigars or bourbon and you want to go out and buy yourself that then you have the funds to do it and your spouse does because not coming out of joint doesn’t need to get upset that you’re spending money how she would not prefer likewise, maybe shoes?
You might have to negotiate a little bit on this is why we talk these things through right on what’s a joint purchase, and what’s an individual purchase. But once you do, then that way you each have a little bit of freedom and autonomy and control for your splurge. And the other person doesn’t have to get angry or resentful because it’s your own personal money. But most of the money, of course, comes out of that joint account.
Two Individual Accounts
Allison Dubreuil, Wealthway Financial Advisors: So, we see couples that keep their finances completely separate. Sometimes that could be because it’s a later in life marriage. Where you have been on your own financially your whole life. You have maybe no kids together, kids from a former marriage, and you each have your own assets already. And that can be okay, there can be a reason to keep things separate. But if you’re just starting out in your marriage, and you’re early on in life, I think the joint mindset is the healthiest way to approach a marriage as a partnership, where the family expenses come first. And then of course, a little bit on the side, like you were saying, where you have autonomy.
Kevin Zywna, Wealthway Financial Advisors: Yes. And, and I do like the idea that each individual gets their own separate individual account that they don’t have to ask permission for. That goes a long, long way. A lot of fights and keeping the peace, right in the household. Especially when maybe some months money gets tight, right? And you’re like, well, groceries, electric bill, gas in the car. And then somebody shows up at the house with I don’t know, a new big screen TV that you didn’t need. Well, then that’s the fight right there.
Allison Dubreuil, Wealthway Financial Advisors: Yes. And so, when you are deciding whether to go down this road of combined finances or not, I think we generally would encourage combining unless there’s extenuating circumstances or specific reasons not to. And it’s a good idea to, dare I say it, work on a budget. I don’t know the dreaded b word. I tried to avoid this as much as possible, because nobody likes a budget. But you really should sit down early on and talk about what expenses are joint household expenses, what expenses would be considered personal, and you’re going to see if you have any differences in values on what you should be spending money on versus what is not important. And you can work through those things on the front end before they happen, or before you get too emotional.
Kevin Zywna, Wealthway Financial Advisors: Develop an idea of how much and how you’re going to save and invest for the future. Some people are more free flowing, easy going, live for today, the future will take care of itself. Other people are much more goal focused and future oriented and would prefer to make sure that they have a good solid financial foundation for the future before they start spending lavishly on cars or furniture or vacations. And that value judgment you place on money and certain aspects of your life would definitely lead to arguments if not worked through, right.
Allison Dubreuil, Wealthway Financial Advisors: You can’t assume that you’re on the same page.
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Divorce Implications on Social Security Benefits
Kevin Zywna, Wealthway Financial Advisors:
Right now we’re going to run out to Virginia Beach and speak with Tom. Good evening, Tom, you’re on Dollars & Common Sense.
Caller: Hi, thanks for taking my call. I’m going to mess up your balance theme a little bit. My question is about Social Security after a divorce. I was married for 20 years and have been divorced for 10. I’m just wondering, I’ve heard that I can collect off of my ex-wife’s insurance. And she also mine. I’m just wondering how that works. And if I can collect off of hers, if I was a higher income earner.
Allison Dubreuil, Wealthway Financial Advisors: Good question, Tom. So, you said a couple of key points. You said you were married for 20 years. So that’s good. Because to file on an ex spouse’s Social Security record, you have to have been married for at least 10 years. So, you check that box. And you have to have been in divorce for at least two years before you could get any benefits. So it sounds like you check that box as well. Now, the details come down to whose benefit is larger. Because once you claim Social Security, that’s going to be your benefit for the rest of your life. And you’ll want to default to whichever benefit is the higher of the two benefits. So, do you do know whose benefit is higher?
Caller: That would be mine. That’s pretty much almost answered everything I had to ask there. Yes, that’s what I was curious about.
Allison Dubreuil, Wealthway Financial Advisors: You used to be able to file a lesser benefit and just let yours grow. That was called the file and suspend strategy. But that went away a couple years ago with a tax law because it was a really good deal. So, they caught on to that so you no longer have the option to switch between benefits when you’re divorced, you can just claim the higher of the two. But regardless, claiming on an ex-spouse’s benefit won’t impact them and it won’t impact you. It’s not even anything they would know about if you did not even notify them.
Caller: Okay, you just answered my question of would I know if she was using mine.
Kevin Zywna, Wealthway Financial Advisors: No, you would not know and it would not affect yours.
Caller: I’m really surprised it wouldn’t affect it but that’s great. I was thinking maybe I could collect a few extra dollars.
Allison Dubreuil, Wealthway Financial Advisors: Not here, your best bet is just to go on your own record.
Kevin Zywna, Wealthway Financial Advisors: Okay, I appreciate that. Okay, Tom, thanks for the call. We appreciate that as well.
Allison Dubreuil, Wealthway Financial Advisors: Well, an update, marriage and money talk back to the marriage and money topic. I’ve officially gotten a thumbs down veto on putting haircuts on the joint budget. So, someone’s listening.
Kevin Zywna, Wealthway Financial Advisors: Well, obviously, I’m doing it wrong in my household. I tell you, the hair cut budget is very imbalanced. Yes. When mine is like $18 – $20 with the tip, then I’m looking at $250 on the other side of the ledger.
Allison Dubreuil, Wealthway Financial Advisors: Well, I’m not sure there is actually a way to balance it out exactly what we’re talking about. These are the issues.
Kevin Zywna, Wealthway Financial Advisors: Annoyances, and then they build up after a while.
Both Parties Should Be Aware Of The Finances
Allison Dubreuil, Wealthway Financial Advisors: So, one of the big things we’ve been talking about is open communication. So don’t keep details too close to the vest. Usually, there’s one person that’s more involved in the finances than the other. Or there’s someone who wants to do the day to day management have the budget or the income and the expenses and the other person doesn’t care doesn’t want to know, well, we recommend that both people still be present, have a seat at the table for those conversations. And when we work with clients, we really insist that both clients come in for financial planning meetings, even if one spouse really does not want to deal with the details. They need to know what’s going on so that they have some buy into the strategy in the plan.
Kevin Zywna, Wealthway Financial Advisors: Yes, we always say to our clients that we work with you as a couple, as long as you are a couple and both people need to be present at the majority of all of our meetings. Because like Alison said, even if one person is sort of the money person of the family, of the household, and does the bill paying and all the technicalities and administration around the finances, the other party has to be in the room to hear the conversations to understand why the recommendations get made and understand the decisions that get made from those. It has to be a team approach.
Allison Dubreuil, Wealthway Financial Advisors: And I would suggest maybe weekly sit down meetings. I know, once a week, we did this. We did weekly sit downs for years and years and discussed, where we were every week. It was more like stop spending in a loving way, of course. But now we’re to the point where we can do monthly meetings and check ins just a little temperature check to see where we are. And if we’re on track with our short term goals, or medium term goals, and our long term goals.
Kevin Zywna, Wealthway Financial Advisors: How many cocktails are in?
Allison Dubreuil, Wealthway Financial Advisors: Oh, there’s cocktails always. It’s always right. You don’t want to do it around coffee out. First thing in the morning? Well, no. So cocktail hour budget meetings. That’s what I suggest. Okay. All right. So, we’ve been talking about money and marriage. How to approach combining your finances, when you’re married, whether you’re going to do a joint account, or you’re going to keep your finances completely separate. One of the biggest keys is communication, setting expectations together so that everybody’s on the same page, because money is one of the I think it is the number one issue that couples fight about. We could make it a little more interesting and introduce kids into the topic.
Finances & Parenting Issues
Kevin Zywna, Wealthway Financial Advisors: Which always complicates the issue, right, no matter what you’re talking about when kids are involved. But add kids and money. That brings up a great point because how you choose to raise your children and the philosophy around parenting your children has a lot to do with money. If somebody wants to shower the kids with a lot of gifts and clothes and money without responsibility. In other words, gifting money instead of an allowance type of situation. That is obviously going to be in conflict to somebody who has a different philosophy on child raising and thinks that children should be taught how to earn money and have a stake in what they do in order to get money as they’re developing. Those are going to be at odds. And so, you put parenting styles with financial motivations philosophies, right? Yes, it’s a recipe for potential fireworks. I’m sure like 98% of people listening are nodding their heads going at some point or another, we’ve had these types of disagreements.
Allison Dubreuil, Wealthway Financial Advisors: Yes, whether you’re just going to provide whatever’s needed for the kids, whether it’s a want versus a need, or whether you’re going to set up an allowance system or just pay for certain things and make them work for other things. Most people are coming at this from different perspectives. How you were raised is going probably different and is probably going to significantly impact how you think your children should be raised. So having these conversations on the front end is a really good idea. I like the idea of allowance because not just from a budgeting perspective for the parents, but because it is a tool to help children learn about how to handle money. And you can start it really at any point, I’ve heard the suggestion of $1 for each year, so obviously, you’re not going to pay your one year old $1 allowance but you know, maybe you’re starting in the double digits,
Kevin Zywna, Wealthway Financial Advisors: Yes, executive simple chores around the house and get $two or $3 a week or something like that. If you do give your kids allowance of a meaningful amount, call it like $5 a week, something like that, then a great exercise is $1 to save goes into the bank. $1 goes to charity of the child’s choice and $3 are left for the child to spend at their own discretion. Yes. And that is teaching them good, healthy, meaningful financial habits that can last a lifetime.
Allison Dubreuil, Wealthway Financial Advisors: Yes, I think that’s a great idea to teach about money to the young and to teach the power of saving and giving. I mean, those are really powerful lessons to learn at an early age that will hopefully stick with them. And then that can maybe smooth over some of the different parenting style approaches when it comes to money.
IRAs and Tax Implications
Kevin Zywna, Wealthway Financial Advisors:
Right now we’re going to go out to Virginia Beach and speak with Lynn. Good evening, Lynn. You’re on Dollars & Common Sense.
Caller: Hi. My husband’s retirement on was set up as a self-directed IRA. And we were told that we could not take any losses for tax purposes. Just wanted to see if that’s correct.
Kevin Zywna, Wealthway Financial Advisors: And when you say self-directed IRA, you mean like you control the investment choices in the IRA, right?
Caller: Absolutely. Yes.
Kevin Zywna, Wealthway Financial Advisors: Well, yes, so the short answer is yes, you cannot take any losses on investments that have declined within an IRA. You also don’t pay any tax on profit on investments that you sell for gain in IRA, all the buying selling gain loss activity is protected from taxation inside the IRA wrapper. Okay. Okay. So, hopefully that answers Lynn’s questions.
Allison Dubreuil, Wealthway Financial Advisors: Yes, that’s one of the benefits of an IRA or a 401K or retirement account is that it is tax sheltered. So, you don’t have to pay tax on the gain. But conversely, you don’t get to deduct any losses. Now, a taxable brokerage account on the other hand, each year, you’re going to pay tax on the gain. And you could potentially deduct losses from any losses, and that would be reported on your 1099 tax form, which should be coming out soon. I know, we have a lot of people wondering when they’re going to get their 1099. That should be in the next week or two.
Kevin Zywna, Wealthway Financial Advisors: Yes, that deadline for a lot of custodians now has been pushed back to mid to late February. Also, another note about that lend that the taxation part of the IRA is when money comes out of the IRA, traditional IRA, when the money comes out, that’s when it gets taxed as ordinary income. So just a little clarifying point there. I’m going to stay in Virginia Beach and speak with David. Good evening, David, you’re on Dollars & Common Sense.
Investment Vehicle Options
Caller: How are you sir? Thank you. Two questions. One, we have the emergency fund. We only have a little bit leftover. What’s the next best thing we should be investing our money in? And the second thing is, when is it better to take Social Security early or late?
Kevin Zywna, Wealthway Financial Advisors: The second one’s loaded.
Allison Dubreuil, Wealthway Financial Advisors: Good one. Well, David, tell me, you have an emergency fund and you’re looking for the next best vehicle to save into. Are you still working?
Caller: Still working? Yes, I will have a pension but I am not too far from retirement.
Kevin Zywna, Wealthway Financial Advisors: Okay. And how’s the debt situation? Any consumer debt like credit cards, or store cards or high interest car loans?
Caller: Medical, medical debt and mortgage?
Kevin Zywna, Wealthway Financial Advisors: Medical debt, is that something that’s been financed?
Kevin Zywna, Wealthway Financial Advisors: Okay, so you just have to pay it back over time?
Caller: Yes, on the kids. Couple of congenital things.
Allison Dubreuil, Wealthway Financial Advisors: Do you have access to a company sponsored retirement plan through your work?
Allison Dubreuil, Wealthway Financial Advisors: Does your company contribute any matching contributions? If you put in $1, do they put anything in?
Caller: No, no matching.
Allison Dubreuil, Wealthway Financial Advisors: Okay. All right. Well, typically, emergency reserve is the very first priority. So good job having that then we would typically recommend contributing to company sponsored retirement plans if there’s any matching because you want to get matching dollars. That’s essentially free money. In your case, if you don’t have any specific matching, that gives you a little bit more flexibility. You don’t have to use your company sponsored retirement plan, you could possibly consider doing an IRA or a Roth IRA, depending on your income. Those two vehicles are subject to income limitations, but that would be a good way to be saving a in tax protected wrapper for retirement long term.
Kevin Zywna, Wealthway Financial Advisors: Yes, you want to make sure if you do put the money into an IRA, that that’s generally untouchable, at least psychologically, until you are at least age 59 and a half in order to withdraw without penalty. And if you’re past that age, then you’re fine. They’re the contributions you make, you can withdraw anytime without the 10% penalty. If that were an issue, then a regular brokerage account or a mutual fund directly with a mutual fund company like Vanguard or fidelity or TD Ameritrade or Schwab, after the emergency fund and all the high interest rate debt is paid off. That’s when you want to look to get the money into long term growth oriented investments. Okay, thank you. All right. Now, social security.
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When Should I Claim Social Security Benefits?
Allison Dubreuil, Wealthway Financial Advisors: Yes, David, if you can tell me exactly how long you’re going to live. I will tell you exactly when to claim Social Security. We can do this for you. Yes, it’s such a complicated decision, it really, really depends on your entire financial situation that we couldn’t possibly give any advice on the radio about that. It does really depend on your life expectancy. So, if you think you have a high possibility of living into your mid to late 80s, then that argues for maybe claiming a little later rather than sooner, but the rest of your financial situation really plays into that when are you going to retire? What is your income going to be in retirement? Do you need the money now versus later? My best advice is to find a financial advisor that could look at the big picture for you and help you kind of narrow down your claiming options on Social Security.
Caller: Okay, thank you. I’ve also heard about some type of just over the radio, different things on life insurance, some types of being a way to save money. Can you explain that at all?
Kevin Zywna, Wealthway Financial Advisors: Well, probably not. In the one minute that we have left. David, I’m sorry, but we certainly could. You know, we’ll be back in two weeks, Tuesday, February 28. And you can throw that out there. Again, but generally speaking, we think life insurance as a vehicle should be used for life insurance purposes, primarily, if not exclusively. No matter how it’s sliced, diced are manufactured, it does not make for a great investment type of vehicle. I’ll just leave it at that for now.
Kevin J. Zywna, CFP®