I believe it is always important to be evaluating your investments and other assets and how you are positioned for the future. However, it is especially important to think through these things when there is a major life change, such as marriage. It is important to think through how your money is invested and if those investments align with the goals of your new household.
Every situation is different and evaluating whether your assets align with your goals can sometimes get complicated. This post will simply give you some principals to consider.
Consolidating
After getting married, it is a good idea to consider consolidating your investment accounts to one financial institution. This will make things easier to manage and keep track of. There are limits to consolidating, such as workplace retirement plans. But to the extent you are able, it is a good idea to consolidate.
Be aware that there are almost always account transfer fees when transferring accounts. There are also sometimes certain recordkeeping reasons to keep certain accounts separate. Also, be careful to not accidentally cause a taxable event by distributing funds from an account with special tax treatment or selling a position with a gain in a taxable account.
Account types and how they fit together
When evaluating your investments and other assets, a good place to start is by looking at the types of accounts you have and the different rules for those accounts. We covered several different account types in a series last year.
Starting at a high level with the different types of accounts and assets will give you a sense of how much flexibility you have and how the different pieces can fit together to help you achieve your goals.
For example, if a couple wants to buy a new car, a savings account is a great place to source the money, but a Traditional IRA is a terrible place to source the money. Savings accounts have no special tax treatment, and you can move money in and out without any tax consequences. Whereas early withdrawals from a Traditional IRA will result in income taxes plus a 10% early withdrawal penalty – the cost can easily be 37%+, even for moderate income earners. Looking at the how the different pieces fit together is important.
Adjusting for new goals
To plan for a couple’s new, joint goals, their investment portfolio’s risk tolerance (how much risk they are willing to take) and corresponding asset allocation (how the portfolio is invested) may need to be adjusted.
For an overly simplified example, suppose a couple was just recently married and would like to buy a house in the next year or two. The husband had been saving money for many years to buy a house one day. However, because the goal was previously not specific and he anticipated it being very far into the future, he invested the money in the stock market through a taxable brokerage account. Now that there is a specific, short-term goal, the couple should consider changing the allocation of the account to align with this goal. Every situation is different, but typically if you need the money anytime soon, you do not want it invested in the stock market.
Other goals, such as saving/investing for retirement probably have not changed very much after getting married – it is still a significant goal that is likely multiple decades away. As such, there may not be crucial changes necessary to the asset allocation of retirement accounts. However, it is not a bad idea to review these accounts anyways.
Even if there is not a specific goal in mind, it is also not a bad idea to consider your investment strategy and the types of risks you are taking, considering the new season of life you are in. Again, every situation and person is different, but the consequences of blindly swinging for the fences are amplified when you have a family to take care of – the stakes are much higher than when you are single.
If you have any comments, questions, or ideas for future posts, please let me know
I hope you found this post helpful and educational. If you have any comments, questions, or ideas for future posts, please let me know. You can reach me directly via email at crawford@ulmerfinancial.com.
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