Plan ahead to guard your surviving spouse.
Married women face a special challenge in retirement planning that’s best solved after they and their spouse retire. The problem is that when a spouse dies, the survivor’s retirement income often drops way more than his or her living expenses. This often results in the phenomenon I even have called the “cash crunch of the retiree widow.”
In most cases, the surviving spouse is the wife, since women are sometimes younger than their husbands and are inclined to outlive men by several years.
The first step to addressing this planning challenge is to learn more about your specific situation. Below are six questions you and your spouse should answer as you propose for retirement. The answers will enable you to determine how this challenge might specifically apply to you and your spouse and enable you to develop strategies to guard the surviving spouse.
Question #1: How much will your household Social Security income decrease if a spouse dies?
For most retirees, Social Security advantages are the biggest source of lifetime income in retirement. Most retiree couples receive two Social Security checks so long as each spouses are alive. However, after a spouse dies, Social Security sends just one check, which is the larger of the 2 checks each spouses received while alive. As a result, your household income is reduced, often significantly. It’s vital to conduct “what-if” analyses to estimate the Social Security profit that may proceed to be paid to every spouse if the opposite spouse dies first.
Question 2: What effect does the death of a spouse have on pension income?
If you are fortunate enough to receive significant amounts from a standard lifetime annuity, you’ll be wanting to know the way the death of a spouse will affect your monthly check. The answer relies on the shape of payment the working spouse who participated within the pension plan selected upon retirement.
The only circumstance where the quantity of the pension won’t change is that if the working spouse has chosen a 100% joint survivor pension. However, if she or he has chosen a 50% joint survivor pension, the pension income shall be halved after the working spouse dies. And if the working spouse has chosen a lifetime pension, the pension income will stop completely after the working spouse dies.
Question #3: When retirement savings are used to generate lifetime income, will sufficient income be passed on to the surviving spouse?
Again, the reply relies on what methods you and your spouse selected at retirement to make use of savings to generate retirement income. For any savings used to buy a lifetime annuity from an insurance company, the identical issues described above for annuity income apply: the proportion of income that continues to be paid to the surviving spouse relies on whether the couple elected a joint survivor annuity and the associated continuation percentage.
For savings which might be invested and systematically withdrawn to generate regular annuity payments, the quantity of wealth left to the surviving spouse relies on the extent of the withdrawal percentage and the investment strategy you select. Typically, a conservative withdrawal strategy with a high equity allocation may end up in significant remaining savings when a spouse passes away.
In this case, a conservative withdrawal strategy may very well be a versatile strategy that adjusts the withdrawal amount up or right down to account for evolving investment experience. It would also use a low withdrawal percentage applied to the remaining assets every year to find out your annual withdrawal amount. Such a technique involves using the Payout percentages required by the IRS minimum distribution.
Question #4: Do you rely too heavily on part-time work to cover your retirement costs?
Many retirees proceed to work after they’ve fully retired while also receiving income from Social Security, pensions, and retirement advantages generated from their savings. If they’re struggling to make ends meet while they’re alive, losing income when their working spouse dies may very well be an issue.
Instead of counting on your earned income while also collecting Social Security advantages, pensions, and retirement payments from savings, it’s higher to make use of that earned income so that you and your spouse can delay the beginning of retirement income so it might grow. Another option is to make use of your earned income just for the “nice” living expenses and never depend on it for the “absolutely necessary” living expenses.
Question #5: Would taking out a reverse mortgage while each spouses are alive jeopardize the financial security of the surviving spouse?
Many couples entering retirement have more wealth of their home than of their retirement savings, and it’s tempting to tap into that wealth through a reverse mortgage. If you are considering this, concentrate on the implications of such a move for the surviving spouse. Will they have the option to afford to proceed paying the entire home’s expenses, equivalent to home repairs, property taxes, and residential insurance? These expenses don’t change when a spouse passes away.
If the surviving spouse’s income is insufficient for the assorted reasons outlined on this post, she or he could also be forced to sell the house and move, possibly at a time when she or he is in a vulnerable situation.
Question #6: How much might your living expenses change after the death of a spouse?
It might be insightful to think about any living expenses that don’t change when a spouse dies, equivalent to the housing costs mentioned earlier. Once you will have estimated these living expenses for the surviving spouse, you’ll be able to determine whether the full retirement money available to the surviving spouse shall be enough to cover these costs. If not, you’re faced with a planning challenge.
Answering these questions and developing appropriate strategies is commonly beyond most individuals’s abilities without just a little help, so you need to work with an advisor who has the suitable training and qualifications in retirement planning and is paid to maintain your best interests in mind.
Taking steps to stop financial hardship for a widow in retirement is a crucial strategy to show how much you care about one another.
