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Bring Your Spouse Up to Speed on the Finances

Jason Stipp

Jason Stipp: I'm Jason Stipp for Morningstar. We got a lot of questions during our Retirement Portfolio Week and one of them had to do with preparing a non-financially-savvy spouse to take the reins should you become incapacitated.

Morningstar's Christine Benz has some tips to help with this, and she is joining me today.

Thanks for joining me, Christine.

Christine Benz: Jason, great to be here.

Stipp: So, it would be nice if your spouse was as equally involved in financial decision making as you are; it's often not the case.

But one of the things that you suggest first has to do with the record-keeping and where all the accounts are. A lot of folks have a lot of accounts. How can you make sure that your spouse is ready to take the reins on those accounts should they need to?

Benz: Well Jason, I've always talked about the importance of keeping financial paperwork organized and not saving more than you absolutely need to, and this is one of the reasons why that's so important--because you don't want your spouse to be blindsided and completely unable to navigate if something should happen to you.

So, one document that I always say is essential for this situation is what I call a Master Directory, and simply this is a document where you're going to lay out you major accounts, URLs, passwords, account numbers, and also any key individuals you deal with--so attorneys, bankers, financial advisors, you've got it all in one document that is easily locatable if something should happen to you. So communicate with your spouse that you've got this document and where to find it.

Stipp: Sort of putting everything in one place and streamlining that list of investments. What about the actual investments themselves?

Is there anything that you would do in changing up the portfolio in preparation for such an event?

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Benz: Well in a similar vein, I think it can make a lot of sense to think about streamlining. This is one thing that came out in a recent discussion we had on the discuss forums on Morningstar.com. We were talking about passive versus active investments. What I heard from several people was that as they were nearing retirement, for the sake of their spouses and for their own mental health, they were streamlining. So they were warming up to index funds and ETFs because of that all-in-one diversification that you can get with those very simple investments. So I think ETFs and index funds versus individual stocks or individual bond holdings, a lot of couples have those as well.

You might increasingly gravitate toward some of these all-in-one investment types as well. So think about balanced funds or think about target-date retirement funds that are appropriate for you given your life stage.

Stipp: So for index funds, especially, if there is a management change there or something like that, probably doesn't have as big of an effect on that fund as it might in actively managed funds, so just one less thing to have to keep a track of your own.

Benz: Right, plus you get a lot of diversification in a single shot with those investment types.

Stipp: What about a financial advisor--so, if one spouse is heavily involved in making the financial decisions, maybe there is no need for an advisor now, but there could be after that spouse is gone.

Benz: So one place to start is maybe thinking about your own close family, thinking about whether you maybe have a child who is well equipped to help your spouse during this time. So, you want the child to be financial savvy, of course, and also trustworthy, but that's may be a starting point to have that designated child who is able to coach your spouse through financial matters in difficult times.

If you don't have someone like that in your close family, you might think about starting to interview financial advisors. I was at a conference this past fall, and Bill Bernstein, the asset allocation guru, was there, and he quipped that, by the time you are able to hire an advisor and know all the questions that you need to ask, you could practically be one yourself.

So, it is frankly a financially savvy task to hire an advisor. You need to know the right questions to ask. Go ahead and start thinking about pre-interviewing advisors. Find the right business model that you want your spouse to adopt after you are gone. Go ahead and do some of that legwork for your spouse.

Stipp: Kind of be hands-on about what the picture is going to look like out afterward.

Benz: Right.

Stipp: Normally when someone passes away there is a lot of things that are happening at once. There are a lot of arrangements that have to be made, a lot of affairs to get in order. What are some of the most critical things from the financial point of view that you really want to have front in center for your surviving spouse to make sure that things can go smoothly during that grieving period or that time that's right immediate after someone passes away?

Benz: So certainly you would want to have the surviving spouse to be attuned to what's going on with the estate plan. So, where to find the estate planning documents. Who is the estate planning attorney, assuming there is one. So, get the spouse up to speed on that portion of the estate plan.

But also another key question is where to go for cash. So one of the first rules for surviving spouses is, do no harm and really try to avoid making big, meaty decisions about your financial plan within the first year or so after your spouse passes away.

But to be able to do that, you really do need to know where to go for cash to fund your living expenses. So, if you communicate nothing else, be sure to tell your spouse where to go for cash if he or she needs it after you are gone.

Stipp: Well, Christine sounds like some great tips. Thanks so much for joining me today.

Benz: Thank you, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.