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The Power of Two: How to prosper in marriage.

in Managing Money & Credit, Planning for Retirement
joint finances

Maximizing the financial benefits of marriage involves strategic planning, shared goals, and open communication about finances. It takes some work from both parties, but the effort can pay off by creating several financial advantages, ranging from tax benefits to improved loan qualifications due to combined incomes. Doing it successfully requires teamwork, patience, and ongoing communication. By leveraging the unique financial advantages of being married, setting clear financial goals, and employing joint strategies for saving, investing, and budgeting, couples can build a solid financial foundation and work together towards a prosperous future for themselves and their families.

Financial Benefits of Marriage

Tax Benefits: Filing joint tax returns can sometimes lower your tax burden, especially if one partner has a significantly lower income than the other.

Insurance Savings: Being on the same health or auto insurance plan can reduce premiums and out-of-pocket costs. In many cases, one partner’s plan can be more advantageous for both of you. Discuss and compare your options.

Retirement Benefits: Spouses can inherit each other’s IRA or 401(k) accounts without tax penalties and can contribute to spousal IRAs, boosting retirement savings.

Estate Planning: Spouses often receive favorable treatment under estate laws, such as unlimited tax-free transfers of assets.

Below are some tips for married couples to make their union financially rewarding (many of these will also work for unmarried couples, but a marriage creates additional opportunities and benefits).

The Basics: Financial Planning Best Practices for Married Couples (and Unmarried Couples)

Open Communication: Regularly discuss your finances, goals, and concerns. Transparency is key.

Set Shared Goals: Whether it’s buying a home, saving for retirement, or traveling, setting goals together ensures you work towards common objectives as a team.

Emergency Fund: Build an emergency fund covering 3-6 months of living expenses to protect against unexpected events.

Joint Financial Strategies

Joint Accounts vs. Separate Accounts: Decide whether to merge your finances completely, keep them separate, or a combination of both. Joint accounts can simplify expenses like bills and mortgage payments, while separate accounts can maintain financial independence.

Debt Management: Work together to pay off debts. Prioritizing high-interest debts will save money.

Investing for Couples

Diversify Investments: Diversify your investment portfolio across different asset classes to minimize risk and maximize returns.

Retirement Accounts: Take advantage of retirement accounts, especially if your employer matches contributions. Consider Roth IRAs for tax-free growth and withdrawals.

Building Wealth as a Couple

Real Estate: Investing in real estate can provide long-term value appreciation and rental income.

Invest in Education: Investing in further education or training can lead to better job opportunities and higher incomes. You can also invest in your children’s education and get them started on saving for their futures- which can also help yours.

Entrepreneurship: Starting a business together can be a way to build wealth, but it comes with risks and challenges. Ensure you have a solid business plan and emergency fund. Talk with a financial advisor about the potential benefits of partnerships or starting an S corporation.

Budgeting for Couples

Create a Joint Budget: Track both incomes and all expenses. Set a budget that supports your shared goals and allows for individual discretionary spending.

Regular Check-Ins: Have a monthly discussion to review your budget, talk about any financial challenges, and adjust your plans as necessary.

Cut Unnecessary Expenses: Identify areas where you can save money, such as dining out less, renegotiating bills, or cutting unused subscriptions.

Social Security

Social Security benefits offer several advantages to married couples that can enhance their financial security during retirement, in the event of disability, or upon the death of a spouse. Understanding these benefits can help couples plan more effectively for their future. Here are the key Social Security benefits for married individuals:

  1. Spousal Benefits

Retirement Benefits: If one spouse has a significantly lower earnings record than the other, they can receive up to 50% of the higher-earning spouse’s full retirement age benefit amount. This is beneficial if the spousal benefit is higher than what they would receive based on their own work record.

Age Requirements: The spouse claiming the benefit must be at least 62 years old, and the higher-earning spouse must have already filed for their own retirement benefits.

Impact on Own Benefits: Claiming spousal benefits does not affect the amount the higher-earning spouse receives.

  1. Survivor Benefits

Upon Death: If a spouse passes away, the surviving spouse is eligible for survivor benefits. They can receive up to 100% of the deceased spouse’s benefit, assuming the survivor has reached their full retirement age.

Early Claiming: Surviving spouses can begin receiving benefits as early as age 60 (50 if disabled), but the amount will be reduced if taken before reaching full retirement age.

Remarriage Considerations: If the surviving spouse remarries before age 60 (or age 50 if disabled), they cannot receive survivor’s benefits as long as that marriage remains in effect. After reaching 60 (or 50 if disabled), remarriage does not affect eligibility.

  1. Divorce Spousal Benefits

Eligibility: If previously married for at least 10 years, divorced individuals may be eligible for benefits based on their ex-spouse’s record, provided they are not remarried.

Benefit Amount: Similar to spousal benefits, divorced spouses can receive up to 50% of their ex-spouse’s full retirement benefit if it’s higher than their own, without affecting the ex-spouse’s benefits.

  1. Disability Benefits

For Disabled Spouse: If a spouse is disabled and has insufficient work credits to qualify for Social Security Disability Insurance (SSDI) on their own, they may qualify for benefits based on their spouse’s work record.

For Survivors: If the working spouse becomes disabled or dies, the non-working or lower-earning spouse and children may be eligible for benefits based on the disabled or deceased spouse’s work record.

Planning Considerations

Timing: The decision of when to take Social Security benefits is crucial. Delaying benefits until full retirement age or later can result in higher monthly payments.

Earnings Test: If you claim Social Security benefits before reaching full retirement age and continue to work, your benefits may be temporarily reduced based on your earnings.

Understanding and navigating the complexities of Social Security benefits for married couples can significantly impact retirement planning and financial security. Couples should consider their overall financial situation, health, and life expectancy when making decisions about when to claim Social Security benefits.

Optimize Your Financial Collaboration with Lafayette Federal

Social Security benefits are just one part of a robust joint financial plan. To survive (and thrive) as a couple, you need a strong financial roadmap to ensure your savings can support you when you need it.

At Lafayette Federal, we are expert at educating our members in order to pave the way to success. We are skilled at product/service selection, navigating various markets, and planning for the future. We provide tools and resources to help our members thrive at all stages of life, including couples’ financial planning, retirement, and much more!

Not a Lafayette Federal member yet? You can become a member by completing an online membership application.

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