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expense changes when one member of a couple passes away
Old 06-13-2015, 03:26 PM   #1
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expense changes when one member of a couple passes away

I assume DW will live a good deal longer than I will, because she is younger, leads a healthier lifestyle, has lots more friends and is female (all positives).

I was running some scenarios with Fidelity Retirement Income Planner. After studying the results, I had 2 general questions.

1. Are there studies out there showing how expenses change when one member of a couple passes away? Maybe they drop by 10%, 25% etc

2. Are there calculators that allow for a change in expenses at a certain age? or when a person dies? For example, Social Security (income side) drops at a certain age because there is one SS rather than 2 but expenses are assumed to be the same (increasing with inflation of course).
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Old 06-13-2015, 04:36 PM   #2
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Your expenses will be offset with parties, spa treatments and other stuff.
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Old 06-13-2015, 07:15 PM   #3
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Originally Posted by DEC-1982 View Post
I assume DW will live a good deal longer than I will, because she is younger, leads a healthier lifestyle, has lots more friends and is female (all positives).

I was running some scenarios with Fidelity Retirement Income Planner. After studying the results, I had 2 general questions.

1. Are there studies out there showing how expenses change when one member of a couple passes away? Maybe they drop by 10%, 25% etc

2. Are there calculators that allow for a change in expenses at a certain age? or when a person dies? For example, Social Security (income side) drops at a certain age because there is one SS rather than 2 but expenses are assumed to be the same (increasing with inflation of course).
When I look at our expenses by category, I think about 1/3 would continue about about the same level. The other 2/3 will be cut in half. So I figure a 1/3 reduction in total expenses. That's about equal to the cut in SS.

"Running the house" expenses stay the same - taxes, utilities, maint, insurance, repairs. Food, clothing, medical, and "personal care" are cut in half.

Fuzzier are: Cars (the survivor would get rid of one, but we frequently travel together), other travel (airfare and restaurant meals go down, but hotel rooms don't).

I did a poll on this and discovered that I'm in a minority: Poll: Survivor Spending

I also have a couple threads on average spending of singles vs. couples. You may get some ideas there:
Average Spending - Singles
Consumer Expenditures Survey
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Old 06-13-2015, 07:25 PM   #4
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The rule of thumb that I've heard from author Lawrence K.* is two can live for the price of 1.6.

*Didn't want to look up the spelling since I'm on the tablet.
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Old 06-14-2015, 07:26 AM   #5
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Thank you for the feedback. I found this useful. I made some notes from the comments on this post. I then went through the posted links and made copious notes from the data and the attached comments.

I need to spend some time/effort with FireCalc and ORP and confirm we cannot reduce expenses at estimated age of death. If anybody KNOWS this already, please confirm. Thanks.

Thanks again.
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Old 06-14-2015, 07:49 AM   #6
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I think it can depend on the couple and which one dies first. In the case of my family, if I die first (most likely I think) the family cost of the remaining spouse will drop dramatically, maybe as much as 50% or more. The DW interest really don't cost us a lot of money. OTOH, the cost of my interest/hobbies/etc are crazy high. If I'm the one who lives the longest, I expect my expenses will actually go up, maybe 50%. She helps me exercise "some" level of control.

Of course, people can change, so you just never know for sure.
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Old 06-14-2015, 08:10 AM   #7
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Originally Posted by DEC-1982 View Post
Thank you for the feedback. I found this useful. I made some notes from the comments on this post. I then went through the posted links and made copious notes from the data and the attached comments.

I need to spend some time/effort with FireCalc and ORP and confirm we cannot reduce expenses at estimated age of death. If anybody KNOWS this already, please confirm. Thanks.

Thanks again.
If your plan only works if expenses decline significantly in the year of your actuarial death, it could be that you are too close to the edge and can't afford to retire.
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Old 06-14-2015, 09:19 AM   #8
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Originally Posted by DEC-1982 View Post
Thank you for the feedback. I found this useful. I made some notes from the comments on this post. I then went through the posted links and made copious notes from the data and the attached comments.

I need to spend some time/effort with FireCalc and ORP and confirm we cannot reduce expenses at estimated age of death. If anybody KNOWS this already, please confirm. Thanks.

Thanks again.
You might be able to use the "Other Income/Spending" tab.

If you want to model the first death as occurring in 2030, you could represent lower spending of $10,000 by inputting an inflation adjusted "pension" of $10,000 starting in 2030. This should work because decreased spending and increased income should have the same impact on portfolio withdrawals.

If you want to model a non-COLA pension of $12,000 disappearing in 2030, you can input a negative $12,000 for 2030, then uncheck the "Inflation adj" box.

Then, of course, try other sample years of death.

I don't know how complex your situation may be, but Firecalc gives you three lines of input. Note that Firecalc has an "Investigate" tab where you can specify that you want to download detail for one year. The "Portfolio" tab allows you to specify fixed returns and inflation. Putting them together, you should be able to check that Firecalc is interpreting your input as you intended.

In our case, it wasn't that we needed someone to die to make it work, but rather that lost pension and SS would make an early death a problem. That didn't turn out to be a problem, the survivor inherits 100% of the portfolio, and that more than offsets the lost pension and SS.
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Old 06-14-2015, 10:10 AM   #9
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If your plan only works if expenses decline significantly in the year of your actuarial death, it could be that you are too close to the edge and can't afford to retire.
Good point. I have been giving this some thought. For planning, I used death at 85 for me and 95 for DW, and with current expenses the money runs out at DW age 94.
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expense changes when one member of a couple passes away
Old 06-14-2015, 10:21 AM   #10
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expense changes when one member of a couple passes away

Actually one of the expenses--taxes- could go up --significantly. Single taxpayers have lower bracket cutoffs and lower exemptions and standard deductions....if other needs require the same income generation for two as for one, the one could end up in a much higher tax bracket.


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Old 06-14-2015, 10:34 AM   #11
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Actually one of the expenses--taxes- could go up --significantly. Single taxpayers have lower bracket cutoffs and lower exemptions and standard deductions....if other needs require the same income generation for two as for one, the one could end ip in a much higher tax bracket.


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That is often the case. I do taxes for seniors (TaxAide). I frequently have clients whose spouse died and the following year is a real surprise. We try to work with them during the final year filing joint to establish a different withholding pattern or estimated taxes but it is usually a tough sell. "Fortunately" a lot of them are already over-withholding anyway so it doesn't mean a hit other than reducing their refund.
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Old 06-14-2015, 10:39 AM   #12
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You might be able to use the "Other Income/Spending" tab.

If you want to model the first death as occurring in 2030, you could represent lower spending of $10,000 by inputting an inflation adjusted "pension" of $10,000 starting in 2030. This should work because decreased spending and increased income should have the same impact on portfolio withdrawals.

If you want to model a non-COLA pension of $12,000 disappearing in 2030, you can input a negative $12,000 for 2030, then uncheck the "Inflation adj" box.

Then, of course, try other sample years of death.

I don't know how complex your situation may be, but Firecalc gives you three lines of input. Note that Firecalc has an "Investigate" tab where you can specify that you want to download detail for one year. The "Portfolio" tab allows you to specify fixed returns and inflation. Putting them together, you should be able to check that Firecalc is interpreting your input as you intended.

In our case, it wasn't that we needed someone to die to make it work, but rather that lost pension and SS would make an early death a problem. That didn't turn out to be a problem, the survivor inherits 100% of the portfolio, and that more than offsets the lost pension and SS.
Thanks for explaining the options in FireCalc. I now see 91.4% success, 3 cycles failing out of 35 possible 44 year periods. I think that is good enough for now.

I will re-evaluate every year and make spending adjustments if needed; I know this has been discussed many times.
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Old 06-14-2015, 10:55 AM   #13
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How much expenses change will be very individual. For example, the idea of housing expenses not changing depends on the idea that the remaining spouse keeps the same house. That may or may not be true. To some extent, it may depend upon how similar the two spouses are on what they want in a house.

In our house, DH and I would both individually pick a less expensive house than we actually own. DH wants a house with more acreage than I really care about. I, on the other hand, like nicer finishes inside the house than he cares about. We are both happy with our current house because it has both of these things. Theoretically if it were only one of us we could sell and get a less expensive house that would suit just the one of us. And, it could even be a smaller house.
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Old 06-14-2015, 06:35 PM   #14
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Originally Posted by urn2bfree View Post
Actually one of the expenses--taxes- could go up --significantly. Single taxpayers have lower bracket cutoffs and lower exemptions and standard deductions....if other needs require the same income generation for two as for one, the one could end up in a much higher tax bracket.


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Very true. Taxes increased 50% income declined 10% expenses actually remain to be seen thus far they actually increased a lot but should level off now.
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Old 06-14-2015, 07:35 PM   #15
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Actually one of the expenses--taxes- could go up --significantly. Single taxpayers have lower bracket cutoffs and lower exemptions and standard deductions....if other needs require the same income generation for two as for one, the one could end up in a much higher tax bracket.
+1. This is a good reason to do those conversions from tIRA to a Roth if you have room in your tax bracket. A survivor who has been in 15% bracket their whole life can suddenly be in the 25% bracket. Example (2015 numbers):
................................MFJ ....... Single
Standard deduction.....$12,600.....$6,300
Exemptions.................$8,000......$4,000
Top of 15% bracket* $54,300.....$27,150

* After standard deduction and exemption(s)

Of course, above the 15% bracket Cap Gains start being taxed, etc.
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Old 06-14-2015, 07:50 PM   #16
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I just assume the young wife will take up with the pool boy after I'm gone, so her expenses probably will increase.
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Old 06-14-2015, 08:59 PM   #17
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I was thinking about mentioning the pool boy...
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Old 06-15-2015, 07:35 AM   #18
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Haha-- for years I have referred to our retirement savings as my "cabana boy fund". 😄
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