Bucks: How to Talk About Money With Your Spouse

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Carl Richards

Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at BAM Advisor Services. His book, “The Behavior Gap,” was published earlier this year. His sketches are archived here on the Bucks blog.

Years ago, my wife and I had dinner with another couple, whom I’ll call Bob and Sue. During the meal, we discussed money, the market and our goals and dreams for our families. Then we started talking about retirement, and that’s when Bob got a big surprise.

Sue mentioned that traveling more was her primary goal for retirement. As Sue talked about her travel plans, I looked at Bob and could see he was shocked. Bob then admitted that he’d never heard Sue say anything about travel. “I didn’t know it was a goal,” said Bob.

What made this so surprising is that Bob and Sue had been together for over a decade in a solid relationship. Clearly, even the most engaged couples or partners don’t automatically cover all the bases when it comes to the big stuff, which means we need to make a concerted effort to do better.

More than once, I’ve been in client meetings where it’s clear that couples are having their first discussion on big decisions — kids’ education, saving, even retirement. Without fail, either one or both individuals is surprised, if not shocked, by their partner’s opinion on a topic. So from what I’ve seen, it seems obvious that the more conversations you have about money before you have to make major financial decisions, the happier you’ll be in your relationship.

I think it’s safe to say the rules apply to whatever relationship you’re in, whether it be personal or professional. Having the conversation before the decision gets made can make a huge difference in not only your happiness, but also the long-term success of your relationship.

Here are a few things I’ve found that can make a difference:

1. Set a spending threshold. Often our biggest arguments come from surprises. For instance, one of the easiest ways to start an argument is for one spouse to make a big purchase without telling the other. I’ve found it helpful to set a predetermined limit. You choose what it is. Depending on your budget it may be as little as $50 or as much as $500. The point is that you discuss it with your partner.

2. Talk about education. It may seem odd, but one of the most common disagreements I see between couples revolves around their children’s education. One parent may say, “I supported myself and paid for my school. It’s better for our kids if they do that, too.” The other wants to pay for the best school the kids can attend, no matter the price. The point isn’t that one is right and the other is wrong. Since it’s a topic that can raise strong feelings, it needs to be discussed, preferably before the first child is a senior in high school and sending out applications.

3. Decide where to live. Some people really want to own a house, others don’t mind renting. Couples need to have this discussion because it can be an emotional decision. There needs to be an honest conversation about expectations on both sides and what’s right for you as a couple and family. I also can’t emphasize it enough: Don’t view your home as an investment. Buy a house for reasons that aren’t connected to selling it again in a year. Otherwise you may head down a road that causes frustration in the future.

4. Talk about vacations. Because big dollars can be involved, you need to talk through your vacation expectations. You need to be honest with each other about a budget that makes sense for travel and put it in the context of your other financial obligations. The last thing you want to do is go on vacation and then come home only to be shocked by the credit card statement.

5. Review your retirement expectations. The way we think of retirement is changing, and you need to discuss it with your spouse. You may be in the camp that says, “I’m working for 40 years and then I’m done.” However, I’m seeing more people say they want to work long enough to then be able to do something that’s less stressful but more fulfilling. Talk it through and be clear about what’s important to you.

At this point, you may be wondering how to get started. Here’s a few ideas:

Each month set aside a specific time and place to talk. Doing so can help you avoid tricky conversations when they’re least expected or when you may already be irritated by something else. By setting aside time, you can prepare and know what to expect. There may still be disagreements, but because you’re talking about money regularly, it’s less likely to get blown out of proportion.

Also, have a “no shame, no blame” rule. Many discussions around money can end in heated arguments. Take the heat out by giving both individuals permission to have these discussions without shame or blame. The point is that you’re talking through the problems. Then, take responsibility for your actions. While there shouldn’t be any shame, with every discussion you should commit to learn from your mistakes and move forward.

Write the decisions down so you can track your progress. A benefit of monthly meetings is that you can assess how you’re doing, but it requires keeping track of what you’ve agreed to do. Write things down and revisit them during your meeting. Have you made progress? If not, what needs to happen? The list can be a great way to manage your monthly conversations. Don’t be afraid to use it and hold each other accountable.

Finally, automate your decisions. If you decide it’s important to save $200 for education every month, give this decision a head start. Work with the institution that’s holding your savings to make the payment automatic. It will give you one more thing to check off the list and save you from having to remake the decision monthly.

Talking about money with our spouse or business partner doesn’t have to be a scary or stressful affair. In fact, I think we can dial down the stress significantly when we have a better understanding of what matters to the other person in our relationships. It also doesn’t hurt that we get the added benefit of greater financial success in our lives by talking through these big financial decisions before they become critical.

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YOUR MONEY: Want Better Car Insurance Rates? You Have to Make the Call - Your Money

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Most consumers know that they aren’t going to get a courtesy call from their service providers telling them they qualify for a better deal. Yet they still fail to review their policies or contracts each year to make sure they’re getting the lowest rates possible.

Well, Mr. Mitchell’s accidental victory may provide just the needed incentive.

After retiring last summer from a long career as a programmer, Mr. Mitchell said he knew he should review his expenses and try to trim whatever he could. His hefty auto insurance premium on his two cars — he was paying $2,537 a year — seemed a juicy potential target. But he said he “dillydallied,” and didn’t call his insurer, Liberty Mutual, until a couple of weeks ago, shortly after AARP contacted him by mail and urged him to call The Hartford for a free quote on his auto insurance.

And it was a good thing he decided to call. The Hartford told him it could offer him a policy with the same coverage for just half — yes, half — the amount he was paying Liberty Mutual, or about $1,267. Mr. Mitchell said he contacted Liberty Mutual with the news. And wouldn’t you know, the representative told him that it had revised its underwriting standards and he would now qualify for a premium of $1,207.

“I was happy to get the reduction, but I was dismayed to learn that the burden was on me, which means there are probably thousands of policy holders who are eligible for this but don’t know what they don’t know,” said Mr. Mitchell, who was insuring a 2002 GMC Envoy and a 2010 Toyota Prius. “It is a rip-off.”

Even more maddening, he said, was the conversation that ensued with a Liberty Mutual branch manager. Mr. Mitchell said he was really irked that the company was perfectly content to let him continue paying twice as much as he needed to, so he asked the manager if the company would have bothered to notify him of the “underwriting changes” when his policy came up for renewal this summer. “To my astonishment, he admitted that the premium reduction would not have been brought to my attention unless I asked for it,” he said.

Mr. Mitchell, who lives in Cave Creek, Ariz., is exactly the kind of customer you would expect Liberty Mutual would want to keep. A loyal client since 1973, he said he had a clean driving record with no accidents — just a few broken glass claims — and a credit score above the enviable 800 mark. Besides the auto coverage, he also has a homeowner’s insurance policy with the company, which Mr. Mitchell thought might have worked in his favor to secure the reduced rate, since insurers often offer multipolicy discounts.

Liberty Mutual, not surprisingly, declined to get into specifics with me about Mr. Mitchell’s situation, and provided a corporate-stamped response: “We continually refine and enhance our ability to most accurately price each customer to reflect their individual risk, based on a large number of factors, and as a result a customer’s price could move up or down,” Glenn Greenberg, a spokesman for Liberty Mutual, said in an e-mail. “We regularly advise our customers upon policy renewal that they may call us to discuss their coverage, benefits and discounts.”

And that drives home the point: the onus is always on you, the consumer, to do the heavy lifting, whether it’s a big-ticket item like auto insurance or smaller bills from your cellphone or cable provider. It’s a simple lesson, yes, but one that is worth remembering every so often. Of course, even when you make the time, finding the best deal isn’t necessarily easy.

J. Robert Hunter, the director of insurance for the Consumer Federation of America, an advocacy group, said he wasn’t at all surprised by Mr. Mitchell’s experience. After all, insurers aren’t required to let you know when you’re eligible for a lower rate, and it’s hard to know if you’re getting the best deal (though in California, insurers must sell their lowest-priced policies to those deemed “good drivers,” or people who have been driving for at least three years and have no more than one violation and no serious accidents on their record). “If you shop for insurance, it is quite easy for one insurer to be half the price of another, even in the same group of insurers,” Mr. Hunter said. “It is very difficult to be sure you have the best price,” he added, noting that many agents are working on commission, where higher premiums might translate into more income for the agent.

(Sales people typically collect roughly 8.5 percent of the premium, on average, said Robert Hartwig, president and economist at the Insurance Information Institute, an industry group, but noted that direct-to-consumer companies often spend much more on advertising).

With the exception of New Hampshire, all states require drivers to have liability insurance, which pays for the other driver’s medical expenses, car repairs and other costs when the policyholder is at fault. (Florida requires drivers to buy insurance that covers the occupants in the driver’s car.) The minimum amount you must carry is set by state law, but many drivers choose to buy more coverage to protect their assets in the event of a costly accident.

Still, about 14 percent of drivers went uninsured in 2009, according to the Insurance Research Council, at least in part because some drivers cannot afford the insurance (Mississippi takes the prize for the state with the highest estimated rate of uninsured drivers at 28 percent, while Massachusetts and Maine have rates of only 4.5 percent. New York doesn’t trail too far behind, at 5 percent).

Your insurance rate is probably based on a variety of factors, including your age, gender, marital status, education level, occupation, the type of car you’re driving, where you live and your credit score. Of course, your driving record is also taken into account, as well as how much you drive. (A recent report, co-written by Mr. Hunter of the consumer group, contends that these pricing methods often work against lower-income drivers.)

As you shop around for a new (or better) quote, you should also consider factors beyond price alone, including the insurer’s rating and responsiveness to claims, Mr. Hartwig said. You can typically find that information, including price comparisons and local consumer guides, on your state’s insurance commissioner’s Web site. New York State’s Department of Financial Services, for instance, ranks 40 insurance companies by the number of complaints upheld against them as a percentage of their premium.

The average premium paid per car — for liability, comprehensive and collision coverage — was about $901 in 2009 (the latest figure available), according to the National Association of Insurance Commissioners. But judging from Mr. Mitchell’s situation, you’re likely to encounter a wide range of prices.

Mr. Hunter said that consumers should specifically ask the insurer — not the agent — whether they were being offered the lowest rate they qualify for, or they should ask the agent to ask the insurer. And he suggested asking for it in writing.

“I was working on the assumption that they were all the same,” Mr. Mitchell said.

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It’s Time to Rebalance the Investment Portfolio - Your Money

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As the markets ebb and flow, the mix of investments that you originally put into place will probably change shape over time. And if you let your portfolio roam free for too long, your long-term plan can be thrown off kilter. Your retirement savings could become too heavily invested in stocks, potentially magnifying your losses when the market takes its next dive. Or your savings could become too conservative, and that’s a problem, too.

You can solve all of this, though, by regularly rebalancing, the industry’s term for putting your investments back in the proportions you originally set. But unless you hand off the reins of your portfolio to a financial planner, you need to make the time to do this yourself (ditto for investors who periodically hire a professional and want to carry out the advice themselves).

So, in theory, the task should be as simple and as automated as possible. Otherwise, you probably won’t find the time to do it. And really, most of the time, you just need to do a little maintenance.

Going through the exercise should be as easy as it is at TIAA-CREF, the financial services organization. When I recently set up a new 403(b) there for a family member — 403(b)s are essentially another flavor of 401(k) plans — I was pleasantly surprised by one of the options presented: Would you like to rebalance your portfolio back to your original allocations on your birthday?

That’s genius, I thought, and so incredibly simple. Why doesn’t my 401(k) plan offer this? Why doesn’t everyone’s plan offer this? And what online brokerages offer similar types of automated services?

As it turns out, automatic rebalancing is a standard option in many, but not all, 401(k) plans. But it should be. There’s little downside as long as you’ve already set up the proper investment mix. It shouldn’t cost you anything, there are no tax implications and you’re simply keeping your risk level intact. Aon Hewitt, a giant retirement plan administrator, said that more than half the companies in its database that offer 401(k) plans — covering more than 12 million workers — offered employees the ability to rebalance last year. That’s a large increase from a decade earlier, when less than 15 percent offered the feature.

Surprisingly, only a few of the larger online brokerage firms, including TD Ameritrade and Fidelity, offer anything remotely similar. Part of the reason, some providers said, is that the situation becomes more complicated when investors hold a mix of taxable and nontaxable accounts, since there can be tax implications and trading costs.

Of course, there are plenty of investments, namely target-date funds, that will automatically rebalance for you. These funds include a mix of investments that gradually becomes more conservative over time. As long as you fully understand what you’re buying and you’re not overpaying, they are good options for many investors, particularly those with smaller balances. Unfortunately, the entire category came under fire after the big market dive because many funds were too aggressively invested and managed to lose more than the broader stock market.

But if you’re trying to do this on your own, the question becomes this: How often should I rebalance and which providers make this as easy as possible?

There are a couple of schools of thought. Some experts recommend rebalancing based on an indicator, like when a piece of your portfolio moves a certain percentage outside your desired range, while others say it’s perfectly fine to pick a date and do it once a year. Vanguard has found that, historically, rebalancing once or twice a year — and only when a portfolio has drifted from its goal by at least 5 percent — produces results that are just as good as more complicated, frequent rejiggering strategies.

Consider what might happen if you did nothing at all. Beginning in 1987, a portfolio of 60 percent stocks and 40 percent bonds would have ballooned to 71 percent stocks by the end of last year, according to Vanguard. Rewind the same portfolio back to 1946 and it would have almost completely changed into an all-equity portfolio, at 97 percent stocks.

It is a counterintuitive strategy, since you’re basically adding money to your losing investments and selling off those that are doing well. But by sticking with it, the exercise helps take the emotion out of investing.

Of course, there are several low-cost services that can do it for you, while many online brokerages will manage your account for a fee. But here’s an informal survey of the offerings for those who want to handle it on their own, both inside and outside of retirement plans (if we missed any, you can add your own suggestions to the list on our Bucks blog):

FIDELITY The firm offers a rebalancing feature through its Portfolio Review tool, available to its 401(k) participants and to retail brokerage customers. After you set up a portfolio, it automatically sends you alerts through its “myPlan monitor” service when your portfolio drifts more than 10 percent from your goals. When you revisit the tool, it will ask you a few questions to make sure your goals remain the same and then recommend how to get back into balance. “So while it’s not automatic, there is an educational element of taking a few minutes to go through it,” said Jeffrey K. Cimini, executive vice president in Fidelity Investments’ personal investing division. Then you can “click to trade” to put everything back into balance.

T. ROWE PRICE The company offers automatic rebalancing as a standard option within the retirement plans it provides to employers. But only 25 percent of workers with access to the tool sign up for it, according to James Griffin, a senior product manager in its retirement plan services group, and that number has been declining over the last few years given the widespread adoption of target-date funds. It offers a similar option for its I.R.A. customers. After filling out a form indicating your selected mix of investments — you need to keep at least $1,000 in each fund in the portfolio — the firm will automatically rebalance your portfolio each quarter if your investments stray more than 5 percent from those goals.

VANGUARD It also offers a similar free rebalancing feature in its 401(k) plans, but employers have to choose to turn on the feature. While offering the service within a 401(k) is relatively straightforward, since there are no tax implications and rarely any related trading costs, the company said it did not currently offer the service to individual investors, though that was something it continued to consider.

SCHWAB It does not offer automatic rebalancing options to retail customers, though it has a couple of tools that illustrate whether your portfolio is off track. But its 401(k) plan participants can elect to have their portfolios rebalanced quarterly, semiannually or annually, and they receive a notice each time it has been reallocated.

TD AMERITRADE Its customers can automatically rebalance through its free Portfolio Planner tool, where you can analyze an existing portfolio or get help building a new one. While the service does not send any automatic reminders letting you know when your portfolio needs to be rebalanced, after you go through the tool, you can choose to “align your current portfolio to your target portfolio,” and it will do the math and set up and execute your trades with a few clicks. You can try to keep commission costs to a minimum by using its 100 commission-free exchange-traded funds and more than 700 mutual funds that don’t charge any transaction fees or commissions.

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Prudential Reveals Saving Money is Top Priority for Thrifty Retirees

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LONDON, ENGLAND, May 02, 2012 /24-7PressRelease/ -- Prudential has revealed the results of new research which shows the top priority for people intending to retire this year is saving money to ensure they have enough to live on in retirement. Nearly 6 out of 10 people (57 per cent) said saving will be a top priority.

The insurer's Class of 2012 study, which looks at the finances and expectations of those planning to retire this year, also found that women are more likely than men to prioritise saving during retirement. 62 per cent of women will make this a priority compared with 52 per cent of men.

Although saving money is a key focus, those intending to retire this year are still determined to have a fun-filled retirement. More than a third (36 per cent) say that spending money on travelling the world will be a priority for them, while 43 per cent will make spending money on enjoying themselves a priority.

Giving to charity and spending money on fighting the ageing process are low priorities for this year's retirees. Fewer than 1 in 20 (4 per cent) image-conscious pensioners say that spending money on anti-ageing treatments will be a priority in retirement, while only slightly more will prioritise giving money to charity (5 per cent).

Vince Smith-Hughes, retirement income expert at Prudential, said: "Today's retirees are likely to spend longer in retirement than previous generations so it is encouraging to see that they understand the importance of saving money to ensure they can live comfortably. Saving shouldn't be regarded as something that suddenly stops once you retire, and the current generation of retirees seems to be more aware of this than ever before.

"Saving as much money as possible, from as early an age as possible, is the best way to ensure you can afford a comfortable lifestyle in retirement. Consulting a financial adviser can also be an important step in helping retirees to make the most of their pension pots.

"It's not only about saving though; many retirees in the Class of 2012 are determined to spend money on enjoying themselves and travelling the world, which seems a fair reward for all their hard work during their working lives."

Notes to Editors:
Online survey conducted by Research Plus between 2 and 12 December 2011 among 9,614 UK non-retired adults aged 45+, including 1,003 people planning to retire in 2012.

About Prudential:
'Prudential' is a trading name of The Prudential Assurance Company Limited, which is registered in England and Wales. This name is also used by other companies within the Prudential Group, which between them provide a range of financial services including retirement planning, life assurance, and advice on pensions.

Website: http://www.pru.co.uk

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