Assessing mutual planning with your life partner

When establishing a financial plan involving other stakeholders, such as paying down a mortgage, develop a written plan that all parties can agree upon. You can create written point-form agreements for each party to sign in areas such as investment, vehicle registration, and debt repayment, among others.

When determining your goals, it is important to think positively and avoid language such as “We will never have enough to retire,” or “we can’t seem to get ahead,” or “this debt is killing us.” Statements like this often become self-fulfilling prophecies. Rather, it is essential to design an action plan and work towards it together with all stakeholders, including your spouse or partner, referred to hereafter as your financial partner. You and your financial partner will appreciate the new clarity and increased financial freedom this gives. Slavery to debt repayment is financial bondage and will increase fiscal-related emotional stress on responsible partners. Write your ideas out regarding financial planning concerns, such as:

• Reduce or eliminate debt. One of the encumbrances to investing for retirement is that you may be servicing too much credit card debt, much of which is interest. Both financial partners may have credit cards, doubling the family debt load and vastly reducing your net worth. Thus, it makes sense to pay down the debt on all credit cards, starting with those that carry the highest interest rates first. Aim to be 100% debt-free of abnormal debt weighting in your net worth statement, where possible.
  • Mortgages and average car payments are reasonable expenditures. Be cautious about increasing your Home Equity Line of Credit (HELOC) debt. HELOCs have advantages, but they also come with risks. Some examples of risks include:
    • If interest rates increase, you may have a hard time repaying your HELOC, especially if you withdraw large amounts
    • If you don’t pay back your HELOC, you could lose your home
    • It reduces the equity in your home, which may:
      • Affect your financial stability
      • Limit your future options if you want to sell your home
    • The easy access to funds may tempt you to take on more debt than you’re able to pay back.
    • if you only pay the interest, you won’t pay off your loan.

    Before taking out a HELOC, consider the risks and establish a repayment plan to manage your debt effectively. ¹

• Start or maximize your monthly investment plan. Your plan will depend on your income and expenses. If you are young, begin investing now. Any given sum of money can double frequently, depending on time and interest rate growth. At 6% it can double every 12 years; at 4% every 18 years. To calculate the number of years until the amount doubles, simply divide 72 by the interest rate.
  • This simple mathematical illustration highlights the importance of starting to invest at a young age. If you are near retirement, you may ascertain that you need to ramp up your investing, increasingly over the next few years. Become aware of your retirement options, choosing agreed strategies with your partner ahead of time (compromise may be necessary).
• Reallocate assets as you near retirement. An investment portfolio heavily invested in equities near retirement may be a risky strategy. A portfolio strategy may also consider some fixed income funds (government bonds, corporate bonds, safe mortgages, and real estate) to reduce stock market risk. Your partner’s risk tolerance when it comes to investing may be different from yours.
• Take advantage of tax-saving vehicles. Registered investment vehicles can help you reduce or defer the tax hit. Some plans can offer government grants that supplement your investment contribution to help your children go to post-secondary school. Discuss the viability of tax arrangements utilizing registered investments that are best suited for both financial partners. For example, the spouse with the highest income could take advantage of the Spousal RRSP.
• Don’t sell sound investments amidst a volatile market loss. It may be better to stay invested and adjust your portfolio after the market recovers from any losses, typically following a period of market volatility. If you hold a good fund, the stocks within that fund are likely to be good.
• Review your investments. Remain aware of your investment goals, get periodic updates, and examine the situation with your partner. Your financial partner may not be able to handle the stress caused by a volatile market, so plan accordingly.
• Maintain financial accounts with transparency. Spouses and partners who share mutual financial goals have the right to be informed about their banking and investment accounts and the movement of funds through regular, transparent discussions. Total honesty is necessary. One spouse should not borrow recklessly, nor use credit without the agreement of the other spouse, where funds are to be accounted together in mutual fiscal arrangements.
  • There should only be private boundaries where agreed, such as in mutual business agreements, or where risk or debt is involved, and income is necessary for mutual solvency. Business accounts or transactions that increase risk should not be combined with personal finances or accounts. Establish such boundaries in advance to avoid hard feelings.

^{1 Government of Canada}