Things to Consider when Planning for Retirement as a Blended Family

For married couples with blended families, there are a number of financial issues that can arise. One of the most common ones? Retirement planning.

As you and your spouse begin making plans for retirement and to blend your assets, the following are all things you should keep in mind.

Look at Retirement Assets for Each Spouse

This is a great starting point—begin reviewing retirement assets and other sources of retirement income that you and your spouse brings into the marriage. Some of these include:

Social Security

• This is a key source of retirement income for most retirees and there are a number of strategies that couples can consider in deciding when each spouse should claim their benefit. Factors to consider include the relative benefit levels of each spouse, age differences and others.

Retirement Plans

• These include 401(k), 403(b), IRAs, etc. Review these accounts for both you and your spouse to ensure you're taking full advantage of these assets. When doing so, it’s important to review how you're allocating your investments and ensure that this allocation is in line with an overall asset allocation and retirement strategy for you as a couple.
• If either or both spouses are entitled to a pension from a current or former job, you'll want to be sure to factor this income stream into your retirement planning. You'll also want to look at the optimal time to claim your benefit, if you haven’t already, including whether to take the benefit as an annuity or as a lump-sum rollover if that option is available.

Annuities

• Another form of retirement savings that can offer lifetime income options, if either or both spouses have an annuity the couple should look at the options for converting this into retirement income at the appropriate time.

An important factor to consider with retirement accounts and workplace pensions is to ensure that any beneficiary designations reflect your current marital status as appropriate. If the beneficiaries are listed as someone other than the person(s) you wish to benefit from the account, the beneficiary designation listed on the account will govern regardless of the account holder’s intentions. This could include an ex-spouse or another unintended beneficiary.

Beyond any retirement accounts, taxable investments should be considered as well. Likewise, if either you or your spouse has any pending stock-related compensation such as options or restricted stock units from an employer.

What Does Your Retirement as a Couple Look Like?

If you're in a blended family situation, you should look at what the financials of retirement will look like for the both of you. Things to consider include:

• What type of lifestyle do you envision during retirement? Will you stay in your current home? Perhaps you'll want to downside or even relocate to another part of the country.
• What types of activities will you engage in during retirement? Will you travel extensively?
• Do either or both you and your spouse have any unique medical needs that will significantly impact your spending in retirement?
• You'll also want to consider any financial obligations arising from a prior marriage. These might include child support obligations, alimony or a QDRO agreement whereby a former spouse receives some or all of their ex-spouse’s retirement plan assets.

Are There Assets that Should Be Excluded from Consideration?

In the event of a second marriage for either you or your spouse, there may be assets that should be excluded when looking at sources of retirement income. These could be assets that are part of a divorce settlement or otherwise not part of the marital assets for you.

In some cases, assets not included among the marital assets for you and your spouse would be spelled out in a prenuptial agreement. These agreements can be used for a number of purposes including protecting the interests of the children from a prior marriage. A prenup might also be used if you or your spouse enters the marriage with a vastly different level of net worth or indebtedness.

Examples of assets that could be dealt with via a prenup might include interests in a family business, real estate or assets that are earmarked for children of a prior marriage or other family members.

Are You on Track Toward a Successful Joint Retirement?

Planning is key. It’s important for couples in a blended family to take stock of all potential retirement assets as early as possible to ensure that you're on track toward a successful retirement. You'll also need to consider other aspects of your situation.

For example, if there is a significant age difference between you both—will the younger spouse’s retirement be secure when the older spouse dies, assuming the older spouse dies first? This is a consideration in terms of which accounts are tapped first, including IRAs and other retirement accounts.

Ensuring that beneficiary designations on retirement accounts and life insurance policies are in order is also a key part of the retirement planning process for a blended family. In the event of the death of one spouse, these assets could be a key part of the retirement income for the surviving spouse. This is crucial if you're a married couple in your first marriage, but it's even more crucial if you're in a blended family situation. This same thought process also applies to any wills or other estate planning documents, as well as how bank accounts and real estate are titled.

While there is a lot of planning that may be related to assets that each of you brings into the marriage, planning for assets accumulated during the marriage is also critical. How this is handled can have a large impact on your financial future, especially your quality of life in retirement. It's important that these assets are properly titled to reflect that they are joint assets of the couple where appropriate. In the case of retirement accounts, applicable workplace benefits and life insurance policies, again they will need to have up-to-date beneficiary designations.

Pulling It All Together

Retirement and financial planning is complicated for any married couple, but a couple where a blended family is involved adds to this complexity.

Working with a financial advisor who is knowledgeable about the retirement issues involved with a blended family can help both you and your spouse take an objective look at your retirement readiness and help you establish a retirement plan to make the most of your combined retirement assets.