One might think that the power of two monetary forces combined would make investing for retirement far easier. While this can be the case, it doesn’t always turn out that way.
Meshing two peoples’ finances and investing needs and goals together can come with its fair share of mistakes, no matter how great the relationship is otherwise.
Thankfully, many of the retirement mistakes couples make are both common and avoidable – here they are:
Leaving one person in the dark
Each couples’ recipe for financial success is different. One ingredient they all have in common, however, is complete honesty and communication.
It’s not enough to just assume your spouse or partner will handle everything. Each of us faces a unique set of financial needs (yes, even if you’re in a relationship). Women especially have this challenge, as they tend to live longer, earn less, and are more likely to become extended caregivers on average. Even worse, serious problems like financial infidelity can stem from a lack of financial communication.
Couples need to set the groundwork for clear, open and honest financial communication to ensure they are both on the same page.
“Diworsification”
Many times, couples will agree on retirement goals, along with general saving and investing goals to get there. While that’s all well and good, another one of the major retirement mistakes couples make is stopping there.
Diversification is just as, if not more, important than the amount you invest. It can reduce risk while increasing return, and avoid the pitfalls of a concentrated bet in the markets. And a common mistake that couples make is to assume that because they each have their own investment accounts, they’re diversified.
For instance, if you both agree to use your individual accounts for retirement, you might think you’re twice as diversified. However, if all of those accounts are invested in the same asset class (like stocks), you’re actually increasing the risk and concentration of your wealth.
Prudent investors understand the importance of investing in wide selection of stocks, bonds, and hard assets across the globe. Don’t assume that having multiple investment accounts is equivalent to diversification.
Not accounting for risk levels
Just like everyone has different personalities, we all have varied investing styles. For instance, one partner might be a gung-ho risk taker, while the other might desire a more conservative investing approach.
Just like a diet, your success with an investment plan largely depends on sticking to it for the long-term. That’s why one of the retirement mistakes couples need to avoid is not accounting for risk tolerances. There isn’t a one-size-fits-all solution – you need to both compromise to find what works for you. A trusted financial advisor can also be extremely helpful for helping you understand and choose the right risk levels.
Conclusion
When it comes to avoiding the common retirement mistakes couples make, the key takeaway is the importance of communication. Open and honest channels of communication will help to bridge the gap between what the both of you expect and how best you can both achieve your retirement goals.
At LexION Capital, we have deep experience helping couples retire without financial worry. If you’d like to learn more, schedule a conversation with us today.
