NEST-EGG PLANNING FOR THE NOT-SO-AVERAGE JOE Start early and consult with pros, as the law is filled with pitfalls Many retirement-planning strategies nicely accommodate the traditional husband-wife-kids family unit. But times have changed, and millions of nontraditional households have decidedly noncookie-cutter retirement needs. Nearly half of all American marriages end in divorce, creating headaches for millions of adults thinking about their retirement years. Likewise, single parents, gays and lesbians, and those who choose to live together outside of marriage all have formidable retirement-planning challenges. Financial planners and estate attorneys universally offer such households the following self-serving, but smart, advice: Plan early, and get expert help. The law provides plenty of protections for married couples, but it's filled with pitfalls for almost everyone else. Indeed, corporate benefits routinely extend to spouses of employees, but do not always protect unmarried partners. That's why people with nontraditional living arrangements need to set up their own safety nets, prepare special legal documents, and plan independently for retirement. ''It's important in these situations to get all your i's dotted and t's crossed far in advance of retirement so nothing goes wrong or is challenged after death,'' says Elizabeth S. Lewin, author of Financial Fitness for Living Together ($14.95, Facts On File). Divorced working mothers are among those most in need of careful retirement planning, says Bird Patrick, president of Security General Financial Management in Boston, which specializes in financial planning for women. Once a woman emerges from a divorce, her household budget typically becomes badly stretched, and savings start to disappear. Patrick advises these women to quickly establish a household budget that allows for automatic monthly savings, and develop specific retirement goals. ''Usually, it's impossible to live at the same standard'' as before the divorce, Patrick says. But for most divorcees to retire in comfort, they'll need more than just Social Security and the proceeds of their company retirement plan, she cautions. One critical matter facing divorced women as they plan for their golden years is whether they're entitled to 50% of their ex-spouse's company retirement plan, an issue not always dealt with in divorce settlements, Patrick says. While the money could come in handy, it would likely take a court battle to get it. Another option, though not always recommended because of the expense and hassle, is to take out life insurance on your ex-spouse if he or she is responsible for child support. You'll need the consent of your ex, of course, which may not be possible if your parting was acrimonious. EXCITED. Once the smoke from the breakup has cleared, divorced women should plan for retirement much the same way married people should: Contribute the maximum to the company retirement plan, set up an emergency fund through automatic deductions from their checking account, and, if there are children, properly providing for them through a will and by getting insurance that takes care of them if neither parent is able. Following this strategy has Bridget Marron, a 37-year-old single mom, excited not just about retiring--but about retiring early. After her divorce 10 years ago, Marron never managed to save any money beyond her 7% contribution to the 401(k) plan offered by the Boston health-care provider she works for. The employer matches 100% of her contribution. Although Marron receives child support from her ex, her $42,000 annual salary left her worried about paying for both her daughter's college education and her own retirement. But last year, she cut back on day-to-day expenses and began a savings plan. She set up a college fund for her 12-year-old daughter, bought whole life and disability insurance, and began putting $100 a month into savings. Along with $37,000 in 401(k) money already saved, ''it probably means I can retire at 59 1/2,'' she says. Single parents, divorced or not, should also face the morbid business of planning for their demise as part of retirement planning. David Scott Sloan, chairman of trusts and estates at Sherburne, Powers & Needham, a law firm in Boston, says simply leaving money to your kids can result in a huge estate tax bill, sharply decreasing funds available if your estate is worth more than $600,000--the amount you can leave to heirs tax-free. Although Congress is considering legislation to raise that limit to $1 million, Sloan recommends setting up a trust for the children's benefit in the event of your disability or death. Unmarried couples face formidable retirement-planning challenges. Partners lack any legal right to their companion's assets upon their disability or death, or if the partnership breaks up. No divorce court exists to handle a split between live-in partners. Unmarried couples also lack the so-called marital deduction, which allows spouses to pass on everything they own to their surviving spouse tax-free. Only the first $600,000 of an unmarried partner's assets is exempt from estate taxes. Indeed, it's important to understand the legal implications of not being married. If you own a home together, share property or debts, or have assets you want to pass on to your partner rather than children from prior marriages or other relatives, having legally binding agreements in place is crucial to ensuring each partner's secure retirement, experts say. Out-of-wedlock couples should also plan well in advance for the disposition of company retirement plans. Rules vary, so there's no hard-and-fast way to handle the issue. The first step, says Jane King, president of Fairfield Financial Advisers in Wellesley, Mass., is to decide on a beneficiary and a distribution method. HOSTILE. If no beneficiary is named on your pension plan, the plan sponsor is required to give the proceeds to your closest blood relatives. So if you want your partner to receive the plan proceeds after you die, make sure he or she is named the beneficiary. Also, check if the plan allows unmarried partners to receive so-called joint and survivor benefits. That would allow plan distributions to your partner after you die. When selecting a distribution method, it's critical to tell your employer how you want to do it before you retire, because the payments can't be changed once they begin. Gays and lesbians face similar legal hurdles. Peter M. Berkery Jr., author of Personal Financial Planning for Gays and Lesbians ($24.95, Irwin Professional Publishing), warns that the U.S. financial infrastructure--including the tax code, the investment process, and the probate process--is hostile to the retirement needs of gays and lesbians. Another problem, Berkery says, is that some gays and lesbians think that since they don't have massive child-rearing expenses, retirement planning is ''the straight man's burden.'' But Berkery says the opposite is true. Retirement planning for gays is even more critical because they face so many obstacles. It's not uncommon for hostile blood relatives to launch--and win--nasty court battles over the ownership of assets after death. So Berkery recommends that when planning for retirement, gays should clearly spell out ownership issues in legally binding documents. He also says they should save slightly more money than the averages recommended for straight couples. Why? If they're alienated from their families, they will receive less emotional--and financial--support as they grow old. Lawyers and financial planners sometimes resort to scare tactics to warn clients about the pitfalls of poor planning. They tell stories of divorced women scraping by with nothing left for retirement, and unmarried partners getting tossed out of their homes by their partner's hostile children. That's why it's often worth seeking expert assistance. ''There are lots of things you won't think of, but chances are a professional will think of them for you,'' says King. Thanks to a legal system that's tricky for nontraditional households, that could be wise counsel. By Geoffrey Smith in Boston RELATED ITEMS TABLE: Retirement Planning for Today's Lifestyles Return to top of story

Updated July 11, 1997 by bwwebmaster
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