Understanding how couples differ in retirement planning

He will typically have more than her. But the likelihood is that she will outlive him. In fact, the most common marital status for women over 80 is to be widowed.

This is an important conversation to have with the pair.

They both need to understand the advice to feel comfortable with your services.

It’s worth bearing in mind that you are likely to be advising her on a longer-term basis, so that relationship deserves some dedicated care and attention.

No-one likes to talk about the worst happening, but it’s crucial where the ‘ownership’ of wealth is largely held in wrappers that can only be controlled by just one of the couple.

Pensions, as opposed to say, GIAs which can be relatively easily rebalanced and transferred, if necessary or desirable.

A case study in risk and capacity for loss

Consider the situation of a man with almost all his investment wealth in his DC pension, with a slightly younger wife who has effectively only a state pension to depend on.

Risk profiling tools may not be very helpful here as they are not designed for couples.

Until he dies, she has no ownership rights over his pension.

Let us imagine her anxiety about being provided for in later life is rather high and her risk aversion level means that the idea of investing does not sit comfortably with her.

In your discussions, her fixation is on her familiarity with cash in the bank and the importance of “safety first”.

In the general course of events the financial modelling for a retirement funded by drawdown will account for the realistic possibility of the younger spouse living well beyond her older partner.

And a balance will have been struck between the opportunity for growth in the DC pension portfolio from equities against the attraction of certainty from bonds.

The result is often a balanced portfolio. But that might not sit comfortably, and portfolio risk keeps coming up as a problem.

Managing risk

Risk profiling tools may not be very helpful here as they are not designed for couples.

Broader thinking is needed to engage traditional clients (men) who might be worried about their spouse’s prospects when they are gone.

One of the ways through this situation can be to look at the options around partial annuitisation on the basis that the contract is on a joint life basis. This has several impacts. 

First, it addresses the question; what about me?

There is near absolute certainty that there will be additional income for the more nervous investor for as long as they may live.

This certainty may be enough to steady the emotional ship.