Road to retirement

One of the first questions that many prospective clients ask me is what to do with their investments. It’s a tough question to answer because so much of it depends on their situation, especially for unmarried couples.

The first consideration is determining your objective. Think about your portfolio. Considering your investments, what rate of return do you want? Of course everyone would love 100 percent but let’s be realistic. What rate of return do you need? It’s two different considerations that speak to both investment performance and goal achievement. It’s possible to obtain your desired investment return yet still miss achieving your goals.

When creating an asset allocation, I ask my clients if they want to create a portfolio for both of them as a couple or create an asset allocation for each with their goals as a couple in mind. We do this because most states don’t allow marriage and if you can’t get married, you can’t get divorced. Without a divorce process, partners don’t have a right to each other’s retirement assets should they separate.

When I create portfolios for couples, I utilize the most appropriate investment options available to each client in his/her investment accounts. Where you are limited in investment selection (401k, TSP, 403b, etc.), a couple may want to pick the best investments in each of their plans. For example, one of you may invest in stocks in your retirement plan at work and the other may utilize bonds. As a result, we may have client with a very aggressive 401k portfolio and the other with a very conservative mix.

This may be the best idea for your overall portfolio, but not if you separate. One of you may have been receiving an 8-10 percent return while the other was receiving a 4-6 percent return. The partner receiving the 4-6 percent return may feel a bit slighted. For this reason, many gay and lesbian couples opt for individual portfolio allocations.

It’s also common for one partner to be anywhere from five to 15 years older than the other. Subsequently he older partner may have accumulated more wealth which could throw off the balance between the two. In this case, depending on the size of the age gap and disparity in assets, this might be acceptable. The reasoning is that the older partner might retire sooner and need the additional wealth.

If this balance were reversed, you would have a serious concern. If the younger partner has the majority of the savings in his/her retirement accounts, this money might not be accessible when the older client is ready to retire. As a result of this, you want to make sure that you create the proper balance for both partners. The objective is to make sure that the older can retire on time while not putting the younger in a situation in which he/she has no assets of his/her own. If you separate, the younger client may walk away without anything saved while the older enjoys retirement.

While married couples often maximize savings between them, gay and lesbian couples frequently keep their finances separate. In doing so, each partner is left to save for him/herself. This often throws off the savings balance between partners.

Of course this may be the only option if there is a wide disparity in income between the two of you. That said, it’s important to make sure both of you are able to save. If you plan to retire at the same time, you may find that only one of you can afford to step away from work. Make sure to match your savings rates to your goals. Don’t short change one partner just because he or she earns less. Doing so could have a significant impact on your ability to retire happily.

I recommend that everyone spend an hour or two at least annually to discuss their finances. Talk about where you are and where you would like to be. Make sure that both of you are on the same page and that you protect yourselves in the event you separate. Talking about money is rarely easy, but taking this step will simplify life going forward and help you to achieve your goals.

This article is for informational purposes only and is not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.  Securities and advisory services offered through LPL Financial, a registered investment advisor.