As we’ve discussed previously, it’s often possible to save on fund expenses and/or taxes by making investing decisions at the overall portfolio level rather than at the account level — making sure, for example, that your portfolio’s overall asset allocation is in line with your risk tolerance rather than trying to achieve a diversified allocation in each individual account.
I recently came across a discussion on the Bogleheads forum in which an investor asked whether, in cases in which the spouses in a married couple have very different ages, it makes sense to implement separate asset allocation plans for each of the spouses. That is, should the spouses’ respective accounts be looked at as separate portfolios?
In my opinion, no, a large difference in ages is not, in itself, a reason to break from the “it’s all one portfolio” concept.
What’s the Goal?
In most cases, when it comes to retirement savings, the primary goal is simply to provide a certain standard of living during retirement. And that’s the case whether we’re talking about his IRA, her IRA, their joint account, etc. And to the extent that a collection of accounts are all intended for the same financial goal, it makes sense to consider them as one overall portfolio intended to meet that goal.
Said differently, tax planning aside, with regard to retirement savings, it’s the overall portfolio value (rather than the value of a given account or a given holding) that matters. And, critically, that’s true:
- From the perspective of either spouse, and
- Regardless of the age of either spouse.
So decisions — whether asset allocation decisions, savings rate decisions, or spending rate decisions — should be made with regard to how they will affect the overall portfolio value.
While the overwhelming majority of most married couples’ accumulated assets are devoted to the goal of financing spending in retirement, there certainly are cases in which a specific account is designated as the source of funds for some other specific goal. In such cases, I think those accounts should be treated separately for the purpose of making asset allocation decisions.
Example: Bob and Jane got married at age 60. Bob has three children from his prior marriage. Bob and Jane’s combined assets exceed the amount they expect to spend during their lifetime, so they have decided to treat their Roth IRAs as “bequest money.” They have agreed to list Bob’s children as the beneficiaries of Bob’s Roth IRA and Jane’s sister as the beneficiary of Jane’s Roth IRA.
Because Bob’s IRA and Jane’s IRA are intended for different goals rather than a combined “financing our spending in retirement” goal, it makes sense to make asset allocation decisions separately for each IRA.