It’s understandable that no one likes to think about or plan for the loss of a spouse. It is a devastating personal loss, but without planning, the event can result in a drastic decline in economic security. Losing a partner during the final years of their career can be dangerous for the surviving spouse’s financial security. Furthermore, retirement and long-term care costs may increase without a spouse to share costs and provide care.
More often than not, a husband plans to work until retirement and both spouses intend to live off of his company pension and Social Security benefits. But depending on what pension benefits the husband selected, his pension may not pay out when he passes away. This could also decrease the spousal Social Security benefits the wife receives, leaving her with minimal income.
Could this happen to you? What can you do to reduce this threat?
The most effective way to minimize this risk is to make sure that income needs are taken care of for the surviving spouse. Both spouses need to be involved in the planning process and the building of a retirement income plan.
Make an effort to analyze where you would stand financially if you lost your spouse. What lifestyle changes would you need to make? What amount of income would be required to make up for the loss? Create a strategy taking into account the following solutions:
Consider Spousal And Survivor Benefits
Two factors play a crucial role in determining spousal and survivor benefits: if there is a large age difference between the spouses or if there is a significant inequality in the amount of income each spouse earns over their lifetimes. If your spouse isn’t eligible to receive their own personal benefit, your filing decision will have a greater impact because it determines both your personal benefit and their spousal benefit as well.
Another safe option is for the older spouse to delay filing for retirement benefits as long as possible so that the survivor benefit can be maximized. At full retirement age, a surviving spouse is eligible for 100 percent of the deceased spouse’s benefit. If there is a great age disparity, a widow or widower could receive the spousal benefit for 20 or even 30 years after their spouse has passed away.
When electing pension benefits, choose joint-and-survivor options. It’s unfortunately too common for many to choose single life to increase the benefit, but this leaves the surviving spouse without that much-needed income. Also, income annuities can be purchased with a joint lifetime payout.
Research Estate Planning Options
It is important to invest time and energy into proper estate planning to make sure that wills, trusts, and beneficiary designations have been correctly completed to protect the spouse. Make sure all your paperwork is in order and all details are clearly laid out.
Invest in Life Insurance
Life insurance is critical when it comes to conquering this threat. If permanent life insurance is purchased on both lives, the death benefit at the first death can provide income to the survivor. If more income is needed, the cash value of the other policy can be used to meet income needs. There are also some companies that sell first-to-die policies to meet this type of survivor income need.
Set Up Contingencies
A contingency fund, set aside to meet the uncertainty of longevity, may also be available to meet this need. Another contingency plan is to use home equity to support the surviving spouse through a reverse mortgage or simply by selling the home to provide for alternative housing or care needs.
Don’t Ignore Long-Term Care Planning
Long-term care planning for the surviving spouse is more critical, as she will not have her spouse to care for her. Some long-term care policies allow couples to pool benefits, so if benefits haven’t been used up for the first spouse to die, they can be used by the second spouse.
Don’t be overwhelmed by the sheer amount of details to consider when planning for retirement. Work with a financial advisor to ensure that your plan is foolproof and covers all possible threats. To learn more, download our free report, 12 Keys to a Successful Retirement Strategy today. If you need help, call my office at 770.249.7424 or email me today at email@example.com.
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