“I’ve maxed out in my employer retirement plan and Roth for about 20 years.” (Photo subjects are models.) – Getty Images/iStockphoto
My partner and I have been together for seven years.
We are not married. We are both in our early 50s, and we both have grown children. We are both debt free. He’s a contractor/carpenter and has money in a high-interest savings account from occasional cash-paying jobs, but he hasn’t put any retirement strategy together, so he has no investments. I have maxed out in my employer retirement plan and Roth for about 20 years.
He built our house in the last three years. We are both titled and carry no mortgage. We are in the process of buying another property that he will remodel and we plan to use as a rental. We keep our finances separate for the purposes of our current home and the project home we plan to purchase but do very well with a joint account. Is this a good idea? What retirement investment products are available to him?
California girlfriend
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You are debt free and own your home. That’s good news. – Marketwatch illustration
Let’s start with the good news: You’re both debt-free, so while your partner isn’t working on a 401(k) or managing to set up an IRA or invest money in the stock market or other investment vehicles, he’s staying out of debt. That says a lot, especially if he was a modest earner during those years, but it doesn’t obscure the fact that he may have been living one day at a time and probably didn’t have the money or knowledge to save for retirement. He said, being debt free is not a substitute for retirement planning.
Another positive part of this story: You both have money to invest in property, or at least collectively have money to take out a loan, so I assume his credit rating is relatively good. He’s a contractor, and your homes are valuable assets — you can tap the equity in these homes if you split up or decide to downsize, or if one of you outlives the other and needs assisted living or long-term care. Real estate is also liquid, requiring maintenance, so you need a balanced, diversified retirement plan.
You say you keep your finances separate, except for a joint bank account and, I assume, your current and future assets. There is no shame in his game. Just because he didn’t put money away for retirement doesn’t mean he’s financially sound. It probably means he believed he didn’t have enough or was living paycheck to paycheck. These qualities are a good start for him, and probably a good investment for you too. Separate finances with a joint account for joint assets is reasonable, but it’s also important to align your goals.
Now is the time to put everything in writing, if you haven’t already done so. This will raise many pertinent questions about your business arrangement. What kind of co-ownership do you have in these properties? Are you a tenant in common, where one party can leave their share to a third party? Or joint tenants with right of survivorship, where you both have a 100% share? How is his time and labor accounted for? How do you split rental income? What if one partner wants out and/or cannot contribute financially?
Other questions: What if you split up? Or if one of you dies? What if one of you needs money or changes your mind about these assets? What if one party fails to pay property taxes or doesn’t have enough money for repairs? What if the bottom falls out of the real estate market? You need a legal document that accounts for all kinds of consequences. This is for your safety and his. This will give you both the peace of mind to know that your investment is safe.
I strongly recommend a cohabitation and property agreement. Laws regarding unmarried partners and co-ownership vary by state. For example, California law offers no automatic protections to unmarried couples, and it’s a myth that if you’ve lived together for seven years, you automatically have common-law rights, says Bay Legal, which has offices in Northern California. “To protect your assets, a cohabitation agreement is essential in California,” says the law firm.
“This legal document serves as a cohabitation property agreement and clarifies finances to avoid lawsuits over issues such as California cohabitation law alimony,” the law firm adds. “A Cohabitation Agreement California Template may seem easy, save custom planning. ‘Do Cohabitation Agreements Work?’ A firm is – when it is correctly drafted to meet all legal cohabitation requirements.
Some worst-case scenarios: California law has a “shocking twist” that could make things even more complicated, Bay Legal says. “This legal claim is called a ‘Marvin action.’ The concept comes from the famous 1976 California Supreme Court case, Marvin v. Marvin, which ruled that unmarried partners could sue each other to enforce alleged promises or agreements made during their non-marital relationship. Bottom line: You need to know the law in your state.
It’s not too late for your boyfriend to start saving for retirement, and now that he’s in his 50s, he can even make catch-up contributions. In addition to high-yield savings accounts and CDs, he can look into individual 401(k), SEP IRAs, SIMPLE IRAs, and even traditional or Roth IRAs. “Your 50s are a turning point. There may be a light at the end of the tunnel for big expenses like tuition and mortgages and your earning power may peak,” says Fidelity. “Retirement can outlast your career.”
Now is the time for him to keep a large amount of cash and start investing in a diversified low-cost index fund or exchange-traded fund. Regular contributions over the next 15 years could make all the difference in his retirement. But it should be part of a broader conversation about your respective readiness for retirement, and how that might affect your expectations about your lifestyle in your 60s and beyond.
For a single man without an employer, health insurance will be a big consideration and expense, especially as age increases and the risk of health events increases. “Health care is one of the biggest variables in retirement—and in your 50s, it’s time to be proactive,” adds Fidelity. In fact, the wealth management firm estimates that a 65-year-old retiring in 2025 will need $172,500 for medical expenses throughout retirement, even with Medicare.
We are entering uncertain times for health care premiums and deductibles for self-employed individuals. After the tax credit expires at the end of 2025, premiums for the Affordable Care Act will more than double to about $1,900 per year per subsidized enrollee, according to the health-research organization KFF. Individuals earning more than 400% above the federal poverty level lose their eligibility for the tax credit.
You need to care for each other, and protect your own interests as well.
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