Financial planning for couples generally starts with the assumption that the two parties will share common goals, that they want to do things together and know how to agree on what they will do next.
But that is not always going to be the case, especially around the challenges of retirement.
Perhaps the single, greatest piece of wisdom that you will acquire from working around financial advice is that everyone is so very different.
How much truer is this when advising a couple?
The complexity is not only increased by the addition of one more person, with their own differentiated personality, but taken to another level by the countless permutations within the structure of every relationship.
Advisers with experience pick up on tensions and disunity between clients but need to guard against assuming ‘married’ means ‘very happily married’ or ‘married and with a shared agenda’.
What is going on?
Couples are not discussing their finances. In fact, nearly a quarter of couples have never discussed their retirement income.
In these circumstances, advisers have a job on their hands to draw out a complete and accurately prioritised set of goals around which, to build a coherent plan.
So, what can we do to support clients in making their life plans in a way that will make sense to everyone and capture both their individual and shared visions?
One pot, two perspectives
It is fundamental to understand that men and women can view retirement very differently, depending on their own sense of priorities.
For some, retirement is a time for counteracting existential angst and indecision, when the pressure to ‘do what you have always wanted’ faces off against the looming prospect of incapacity, bereavement and poor health, and the complexities of money.
This is what drives the ‘Go-Go phase’ behaviour when people want to spend, to travel, to explore and taste the finer things in life, after a lifetime at work.
Almost everyone will get on board for fun and games and with that excitement a common sense of purpose can be easier to find.
This is the retirement vision, sold to us by holiday companies.
Wanting what’s best for the kids
Yet for others, your 60s is a time to put family first and foremost, whether elderly parents or adult children or both, whether from choice or necessity.
Let’s look first at the issue of providing for adult children.
What has changed rapidly over the last decade is the financial impoverishment of people in their twenties compared to most earlier generations.
The spread of low pay working, the decline of ‘career’ job opportunities, the cost of higher education, the tightening of mortgage lending criteria, and the relative expense of property means that for many relatively affluent families their adult children are remaining or reappearing on the payroll when mum and dad are at or near retirement.
Do you defer retirement until the family balance sheet can sustain the withdrawal of enough capital to set them up independently, or, cut them loose?
Facing this dilemma, it is all too easy to find yourself in the opposite camp to your partner and for them to be completely anchored on what they think is the best course of action.
Worried about caring
Equally difficult decisions arise often unexpectedly, in relation to care for elderly parents, and if the timing is bad, just when you are planning that perfect cruise.
We naturally assume our parents will go on forever; so health shocks and accidents can take everyone by surprise.
It may be small things like a broken wrist or ankle, a cataract operation or a minor surgery, but who sees this sort of distraction coming over the horizon when they first begin to dream of the endless beaches of retirement?
And some will decide to concentrate on their own individual priorities above all, despite what they say to other people, even those closest to them.
The importance of surfacing the potential differences in expectations and needs can’t be underestimated.
Creating a set of priorities in retirement for each partner can be the first hurdle in creating a plan that matches the expectations of both, as fully as possible, and maybe even allows for some independence.
Who’s money is it?
Society is changing but today most wealthier couples over 50 will show an imbalance in wealth.
He will typically have more than her. But the likelihood is that she will outlive him. In fact, the most common marital status for women over 80 is to be widowed.
This is an important conversation to have with the pair.
They both need to understand the advice to feel comfortable with your services.
It’s worth bearing in mind that you are likely to be advising her on a longer-term basis, so that relationship deserves some dedicated care and attention.
No-one likes to talk about the worst happening, but it’s crucial where the ‘ownership’ of wealth is largely held in wrappers that can only be controlled by just one of the couple.
Pensions, as opposed to say, GIAs which can be relatively easily rebalanced and transferred, if necessary or desirable.
A case study in risk and capacity for loss
Consider the situation of a man with almost all his investment wealth in his DC pension, with a slightly younger wife who has effectively only a state pension to depend on.
Until he dies, she has no ownership rights over his pension.
Let us imagine her anxiety about being provided for in later life is rather high and her risk aversion level means that the idea of investing does not sit comfortably with her.
In your discussions, her fixation is on her familiarity with cash in the bank and the importance of ‘safety first’.
In the general course of events the financial modelling for a retirement funded by drawdown will account for the realistic possibility of the younger spouse living well beyond her older partner.
And a balance will have been struck between the opportunity for growth in the DC pension portfolio from equities against the attraction of certainty from bonds.
The result is often a balanced portfolio. But that might not sit comfortably, and portfolio risk keeps coming up as a problem.
Risk profiling tools may not be very helpful here as they are not designed for couples.
One of the ways through this situation can be to look at the options around partial annuitisation on the basis that the contract is on a joint life basis. This has several impacts.
First, it addresses the question; what about me?
There is near absolute certainty that there will be additional income for the more nervous investor for as long as they may live.
This certainty may be enough to steady the emotional ship.
Second, partial annuitisation can be viewed as an allocation of capital to bonds, but manifested as a lifetime’s income guaranteed.
Annuity ownership underpins capacity for loss and can allow residual pension capital to seek higher returns by taking a higher weighted exposure to equities.
This may better satisfy the more adventurous investor who may also feel more proprietorial about capital and keen to invest up to the limit of his risk tolerance.
Third, annuity decisions need to be rationalised in terms of likely longevity just as annuities are priced against expectations for mortality.
What this means for the better off, whose longevity expectations are above average, is that their opportunity to be the winner among the pool of annuitants is better than average.
It might come as a surprise that the average age of divorce is now over 45.
Older life divorces are increasingly the norm.
The group showing the highest growth in divorce rate is among all-female couples who account for three quarters of divorces among same sex couples (in England and Wales).
When they take place at a highly emotional time in life, this can lead to bad choices by the client.
More than ever, advice is crucial to ensure that tax-efficient splitting of assets will support your client’s longer-term goals.
In 2018 (the most recent figures) there were 118,000 divorces in the UK (ONS) yet only 4,632 pensions sharing orders (Ministry of Justice).
This ratio would seem to reflect a failure by some to take independent financial advice.
As consumer profiles change, so must financial advice.
Broader thinking is needed to engage traditional clients (men) who might be worried about their spouse’s prospects when they are gone.
Diverse advice is also needed for the new owners of wealth – women.
They live longer, get better divorce settlements than ever, and control the household financial situation more than you might think, in particular in setting the priorities around the generations on either side, the younger and the elderly dependents.
Nurturing women’s needs is the key to tapping into a whole new style of client base and a whole new landscape for advice.