The key to retirement planning is flexibility, because things can change suddenly. It's also good to address any inequalities when it comes to financial provision. Far better to address it now, rather than resentment and uncertainty causing problems when you get to retirement.
Plans are Wrong by Definition
We all need to recognise that any plans we make are wrong by definition. The second our plan hits real life, it will need amending or adjusting, because life happens. That doesn’t make this whole process not worth doing though – quite the opposite.
The key benefit of planning, to my mind, is that it forces you to address things in a methodical and careful way, and in so doing, consider some of those variables in advance. That way you don’t have to always be reactive, but can try to be ahead of the game.
So, keep things fairly loose; don’t hold too tightly to criteria and plans, simply because they might need to change sooner and more completely than you’d like. I think that this realisation – that plans are wrong by definition, but there is merit in the planning process – means that you can chill a bit about getting things perfect.
Better to get things done than aspire towards planning perfection. I’ve had planning clients ask me to go into incredible level of detail in their plans, and I always refuse because that’s really not the point. The point is to address things and consider alternatives or the impact of events ahead of time.
Everyone is different and that your situation is unique by definition. This should help you relax a bit and know that you can’t really get it wrong. We need to keep things light while at the same time standing our ground for our interests in the partnership and we need to keep plans in their place – they’re not gospel, just a means to an end.
Address Inequality Head-on
I think we need not to shy away from addressing any significant inequality between the two partners, and by this I do mean any inequality in their financial provision. If one partner is wealthier than the other, chances are there’s good reasons for that.
I see this most often with our clients, who are usually baby boomers. The male has a larger provision than the female, because he has worked all his life where maybe she took an extended career break to raise the kids.
But there are plenty of other reasons why there may be inequality between partners. Maybe one has been in a previous relationship and had to start again building wealth after an expensive divorce settlement. Maybe one had a period of being unable to work and had to draw down heavily on their resources to cover living costs for a while.
The important thing here is to address inequality where it exists. Chances are, if you’re the partner with the most provision, then you don’t think about it much, but I can guarantee your partner does, and for this reason alone you need to address it as a couple.
Firstly, the inequality needs acknowledging. Neither partner needs to be ashamed of their place in the partnership – it is what it is for a reason. But it’s past history and now we’re looking forward, and that starts with an acknowledgement.
Then you need to talk about what that means in practice. If one partner has all the pension provision then there needs to be a discussion about how that gets used. Chances are there won’t end up being that much difference from how it works when you’re both working.
Usually if there is a disparity in earnings between partners, they end up contributing to the household bills somewhat proportionally. But if there’s a huge disparity, then chances are the high-earner is paying for pretty much everything.
I think the biggest area which needs to be addressed is not the practicalities of how money will be apportioned between you in retirement. Rather, it’ll be what happens if one of you isn’t around any longer. We’re not talking about planning for break-up here but what happens if the one with the larger financial provision dies early.
I think there should be a frank discussion about equalising provision where possible and if you decide you’d like to do that, then act accordingly. In my household, I have pretty much all the pension provision in my household as Joanne didn’t work for 15 years.
As my income has risen, we have made sure to redress that now by making payments into her pension, essentially from my income. But that’s us, and you need to decide what you want to do.
Leave a Reply