MONEY & 
YOUR RELATIONSHIP

Alexis James

No matter what stage of a relationship you're in, it's never too early to be thinking about the role money will, can or does play in your interactions. Of course, there are some huge life milestones where money becomes a very important, predominant factor, such as moving in together, getting married or having a kid. But on a day-to-day, dating level it's just as important to learn about your partner's money habits, hash out any differences, and take stock of each other's monetary history.

1.    Do know your “Imago.” Financial imago is a term coined by therapist and money/relationship expert Dr. Bonnie Eaker-Weil that literally means “image.” Knowing your financial image involves realizing the ideas about money that you're carrying around from your parents and from your childhood. They will affect your relationship. It's also important to learn these things about your partner as well – it can make a huge difference in how you interact. If you're tuned into these things, you'll be able to better understand – and deal with – your differences.

2.    Do determine how to deal with dates. Traditionally, the man was expected to pay for dates, but this can get expensive if you're in a long term relationship. Plus, nowadays women are increasingly out-earning their partners. Still it doesn't seem fair to either party to require that one person pay for the things you do as a couple. So as things progress, as you get to know each other better, and go out more, decide how you'll handle the bill. Will you split it? Will you take turns? I read about one couple who had a “dating” account, which may not be a bad idea if you're on a tight budget. They decided how much each person would contribute to the account each month, or paycheck, and used that money to pay for their outings. 

3.    Don't think “it will work itself out.” This is a good rule of thumb for any source of conflict in a relationship, but particularly pertinent to money, which is blamed for an awful lot of splits! If you see a disparity between how you treat money and how your partner treats it, it's best to bring it up. For example, you're careful to pay off your debt, but your partner insists on living beyond their means. Of course, early on in a relationship this can be difficult to do, and you don't want to sound like you're judging them. Just being honest about your financial concerns is important. 

4.    Do talk, talk, talk. Similar to number three above, this one can still be hard because money is still a typically taboo subject. Obviously there are some boundaries (you wouldn't ask a stranger - or probably even a friend – what their salary was!) but when you're building a relationship with someone, difficult questions must be asked. Don't be afraid to voice concerns, talk about your financial upbringing and encourage the other person to do the same!   

Will you be ready financially for retirement?

Americans used to count on a pension plus Social Security to get them through those "golden years." These days, people change jobs more often, rely on dual incomes, and manage their own retirement funds through defined contribution plans. By most estimates, you'll need between 60% and 100% of your final working years' income to maintain your lifestyle after retiring.

Indeed, the current pension system is making everyday retirement insecurity worse. Employers have embraced defined-contribution savings plans like 401(k)s. But 401(k)s don't deliver a steady stream of income during one's golden years. There's also plenty of evidence that workers with access to defined-contribution savings plans aren't taking full advantage of them, either.

It's never too early -- or too late -- to warm up your nest egg.

You can brag all you want to your son-in-law about that 34-inch waistline you maintained through your 30-year high school reunion. Photographic proof is all you need to keep that young whippersnapper in line.

Same with savings scenarios. We can yammer all we want about the factors that affect the size of your nest egg. Instead, we'll regale you with a few pictures.

Even though each person invested the same amount of money, they have significantly different amounts at retirement. For example, Investor A began investing $5,000 a year when she was 25 years old and stopped when she was 35. For the next 30 years, she didn't contribute any more money and she didn't withdraw any money. She just left the account alone.

Investor B, on the other hand, waited until he was 35 years old and contributed $5,000 a year until he was 45. As you can see, that difference of a decade is substantial. At retirement, Investor A has $422,5671 more than Investor B -- over twice as much. In fact, each investor in the chart above has more than twice as much as the person who started 10 years later (except for Investor D, of course, but she's a lot better off starting at age 55 than someone who waited until age 65).

As you can see, three things -- that are completely under your control -- can have a sizable impact on your retirement kitty: 1) how much you invest, 2) the rate of return you earn on your investments, and 3) the number of years those investments have to grow. No matter your age, the sooner you start, the more money -- and options -- you'll have.

Many Worried About Having Enough Money for Retirement

When asked about their financial worries in Gallup's April 6-9 Economy and Personal Finance poll, 63% of Americans say they are worried they will not have enough money for retirement -- exceeding the 56% who are worried about not being able to pay the medical costs associated with a serious illness or accident and the 55% who are afraid they will not be able to maintain the standard of living they now enjoy. Even as Americans are bombarded by a wide range of immediate-term economic concerns ranging from surging gas, food, and healthcare costs to a decline in jobs and a debacle in housing, their most prevalent fear seems to be centered on not being able to achieve a comfortable retirement.

In part, this may be an often-unnoticed result of today's economic turmoil. Not surprisingly given the soaring cost of everyday essentials, the percentage of Americans saying they have enough money to live comfortably right now is 69%, down from the 75% of 2002 as well as the 73% of last year. With incomes stagnating and prices surging, fewer Americans have enough income to live comfortably.

In this context, it seems reasonable for fewer Americans to feel confident they will have enough money to live comfortably in retirement, when their incomes are not only generally lower but also relatively fixed. Add in today's comparatively low interest rates, and one might argue that many of the 46% of Americans who think they'll be able to live comfortably in retirement are being somewhat optimistic. Of course, this does represent a 13-point drop from the percentage of Americans holding this view in April 2002 and a seven-point decline from just last year. Note also that the gap between the percentage of Americans feeling they have enough money to live comfortably now compared to those having similar expectations for when they retire has increased from 16 points in 2002 to 23 points today.

Economy Affecting Retirement Income Expectations

Fifty-four percent of those who have yet to retire say they expect their 401(k), IRA, Keogh, or other retirement savings accounts to be a major source of income for them in retirement. This is up two points over the past year, despite the losses some people have experienced in their tax-favored accounts during the recent past. Social Security is mentioned second most frequently, with 31% seeing it as an expected major source of retirement income -- up from 27% a year ago -- and not necessarily good news given the current condition of the Social Security system.

One reason more future retirees fear they will not be able to live comfortably in retirement may have to do with the impact of recent economic trends on their financial well-being. For example, only 17% of future retirees expect individual stocks or mutual funds to be a major source of their retirement income, down by nearly one-third from the 24% who thought these investments would be a major source for them a year ago. There has been a similar six-point drop, from 23% to 17%, in the percentage expecting their regular savings accounts or CDs to fill this role. At the same time, the percentage of those looking to a work-sponsored pension plan as a major source of retirement income has fallen five points, from 31% last year to 26% this year, while those looking to the equity in their homes is down four points, and is now also at 26%.

MYTH: People will have enough resources to meet this need when they retire.
REALITY: Almost 45 percent of working-age households are at risk of failing to meet this objective, according to the Center's new National Retirement Risk Index.

MYTH: Younger workers will be better prepared in retirement than Baby Boomers.
REALITY: Younger workers are more vulnerable — nearly half of households are at risk.

MYTH: Although 401(k)s are the most common type of employer-sponsored pension, traditional
defined benefit plans still cover a large share of the workforce.
REALITY: In 2003, only 10 percent of all private sector workers with pensions were covered solely by a defined benefit plan.

MYTH: 401(k)s have allowed workers to save significant amounts for retirement.
REALITY: In 2004, the typical household head approaching retirement had only $60,000 in 401(k) and IRA accounts, which translates into less than $400 per month in retirement.

MYTH: If today's workers save as much relative to their income as their parents, their retirement will be secure.
REALITY: Current workers must save more because of the demise of traditional pensions, rising longevity, soaring health care costs, and falling asset returns.

MYTH: It's too hard to save enough for retirement.
REALITY: If workers consistently set aside 6 percent of their paychecks (with a 3 percent employer match), invest prudently, and leave the money alone, they should have enough.

MYTH: Given the trends in retirement income, people will have to work until they drop.
REALITY: Working to age 67 — and not drawing income from Social Security or 401(k)s — would allow most people to have a secure retirement.

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