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Loss of spouse
Old 12-02-2006, 09:53 AM   #1
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Loss of spouse

Sorry if this is morbid or insensitive, but does anyone have experience with how the loss of a spouse affects household annual expenses? My guess is they would go down somewhat but not likely by half. Some bills, like property tax and insurance remain fixed while food and clothing change completely. I'm guessing as an estimate annual expenses are somewhere north of 50% and south of 100% of what they were when a couple was together. Any ideas?
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Re: Loss of spouse
Old 12-02-2006, 10:00 AM   #2
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Re: Loss of spouse

I went through this helping my dad budget after mom died. I'm sure there will be much variability from couple to couple, but for my dad, expenses dropped very little. He choose to stay in the same house and lead pretty much the same life he had when she was alive. So, everything was the same except for a few thousand annually she would have spent on personal items and food.

He realized he could have reduced expenses more by downsizing, but chose not to.
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Re: Loss of spouse
Old 12-02-2006, 10:24 AM   #3
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Re: Loss of spouse

I would actually think that in some cases, expenses would go UP.

In our case, I do most of the maintenance, re-modeling, etc. I do the research to try to get the best deals, or buy what will work for us, etc. My wife HATES to do that. A lot of money would need to be spent if I were not here.

Likewise, my wife does most of the cooking, cleaning, and uncountable list of chores. I would have to spend some money to cover the stuff that could be purchased.

I never ran the numbers, but my gut says we each contribute more that we eat/drink.

If we were older and less active, maybe that would be different.

BTW, it *is* morbid and uncomfortable - but that does not mean we shouldn't talk about it,

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Re: Loss of spouse
Old 12-02-2006, 11:02 AM   #4
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Re: Loss of spouse

Income taxes may go up substantially, since you lose the ability to file jointly, which results in all the brackets "kicking in" at half the income levels. Additionally, you lose an exemption, and the standard deduction is reduced. The provisional income SS tests are also reduced. If you itemize, the phaseouts begin at lower income levels. Also, the 500K exemption from capital gains taxes on the sale of a home drops to 250K, unless the home is sold in the year of the spouse's death.

In addition, you will lose the spouse's half of your SS benefits, and possibly some pension benefits (depending upon how the survivor benefit was structured).
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Re: Loss of spouse
Old 12-02-2006, 11:11 AM   #5
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Re: Loss of spouse

The question is appropriate, and the situation is part of life so it's OK to think about/discuss.

In our case, if I go "first", (assuming my DW doesn’t "hook up" with someone else after I'm gone <heaven knows she deserves it >) there's a good chance that expenses will remain the same. Since our "fur kids" (dogs) are a big part of her life, I can't see her immediately downsizing from our current home. In fact, since 20% our retirement budget is dedicated to her "passion" (travel), she may have more expenses (single participants on tours are always charged more). If she (and it's my hope) that she meets somebody after I'm gone, and lives life to its fullest, I have no (and I won't care what her expenses may be!).

Since I'm the one that's happiest with a good book, a glass of wine, a roaring fire, and the dogs at my feet (in other words, I don't necessarily share her "passion" for travel - but I do participate :P ) I would expect my expenses to drop dramatically if something would happen to her.

Anyway, that's my thought on the question.

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Re: Loss of spouse
Old 12-02-2006, 03:04 PM   #6
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Re: Loss of spouse

hmmm... I didn't really think about the expenses that would go up. I do all the maintenance/repairs so there's that if I'm gone and she stays put. I thought income taxes would go down since our pension income would be substantially reduced (this is what prompted my question, I'm thinking about the question of no option vs a 50% survivor benefit -we both will have teachers pensions). Although I qualify for a small amt of SS (reduced by WEP), I don't think she'll get anything due to GPO. I think if I went first her annual expenses might not go down much but if she were to pass first, I think they might go down quite a bit. It is something I need to gather more info on so we can plan on how best to retire early.
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Re: Loss of spouse
Old 12-02-2006, 05:31 PM   #7
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Re: Loss of spouse

FWIW the default setting for ESPlanner (http://www.esplanner.com/) is

[expenses for two] = [expenses for one] x 1.6.
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Re: Loss of spouse
Old 12-02-2006, 11:43 PM   #8
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Re: Loss of spouse

Quote:
Originally Posted by ERD50
BTW, it *is* morbid and uncomfortable - but that does not mean we shouldn't talk about it,
That's never stopped us before.

Quote:
Originally Posted by FIRE'd@51
Income taxes may go up substantially, since you lose the ability to file jointly, which results in all the brackets "kicking in" at half the income levels. Additionally, you lose an exemption, and the standard deduction is reduced. The provisional income SS tests are also reduced. If you itemize, the phaseouts begin at lower income levels. Also, the 500K exemption from capital gains taxes on the sale of a home drops to 250K, unless the home is sold in the year of the spouse's death.
Well, that sucks.

Our expenses would plummet. I'd immediately stop all tchotchke spending and probably sell off or give away a large number of the current inventory. I'd also shut off the cable TV account and wouldn't do nearly so much redecorating.

But, as a guy, if I was in charge of home décor then I'd probably still be thinking about starting the project by pricing bathroom doors.
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Re: Loss of spouse
Old 12-03-2006, 10:44 AM   #9
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Re: Loss of spouse

Quote:
...(this is what prompted my question, I'm thinking about the question of no option vs a 50% survivor benefit -we both will have teachers pensions). ...
ronin -

DW and I each get pensions - hers from teaching - and we both have reduced our annuities in order to produce a survivor annuity in case of one passing away. In our cases, the annuities were each reduced by about 10% to fund the survivor benefit. This is how we figured out the impact to income following the passing away of a spouse - assuming same annuity amount per partner

Both alive w/no survivor annuity; Income = 2 X Single Annuity/no Survivor Benefit

Both alive w/survivor annuity; Income = 2 X 90% Single Annuity/no Survivor Annuity

Loss of one Partner w/no SA; Income = 1 X Single Annuity/no Survivor

Loss of one Partner w/SA; Income = 1 x 90% + 1 X 50% Single Annuity

I never thought that if either of us passed away, then the other could live on half of our income without severe changes to life style.

I'd think that Bobot's quote of 1.6 would be about the right level for a continued lifestyle cost estimate after a spouse has passed away.

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Re: Loss of spouse
Old 12-03-2006, 11:06 AM   #10
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Re: Loss of spouse

Thanks JohnP. I have created a spreadsheet so I know the income side pretty much exactly and even know what the differences are for up to 40 yrs out, the opportunity cost of funding the diff. out of the portfolio, yrs to breakeven and so forth. I just need to have a better estimate on the expense side. The 1.6x(expenses for one) would imply 62.5% of the couples expenses if I am not mistaken. Gut feeling is it might be a little low for her, maybe ok for me. If we take the option on both pensions, her survivor benefit would be 86% and mine 69%. That might be ok. With no option on mine and the 50% option on hers we actually come out almost even at 68% for either as survivor (due to hers being substantially more than mine) and we'd have 2% more income while we are both still alive (vs. 5.6% more with no opt on either). Thanks again to everyone. I still hope someone with actual experience might chime in. How about you divorcees?
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Re: Loss of spouse
Old 12-03-2006, 11:35 AM   #11
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Re: Loss of spouse

Quote:
Originally Posted by FIRE'd@51
... Also, the 500K exemption from capital gains taxes on the sale of a home drops to 250K, unless the home is sold in the year of the spouse's death.
Yes, but usually the basis is re-set at the time of death of the spouse. The survivor inherits the half interest of the spouse so their share of the appreciation is added to the basis.
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Re: Loss of spouse
Old 12-03-2006, 11:47 AM   #12
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Re: Loss of spouse

A good planning question. I asked a friend who went through it.

The big change comes a year or so later when the house sells, if that is your situation. Other than that, the 30% reduction in ongoing expenses seems to be a common estimate.

FWIW, annuities often sell a 67% or 50% "to surviving spouse" payout option. I guess that only means that this is a popularly accepted estimate.
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Re: Loss of spouse
Old 12-03-2006, 11:51 AM   #13
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Re: Loss of spouse

Quote:
Originally Posted by Brat
Yes, but usually the basis is re-set at the time of death of the spouse. The survivor inherits the half interest of the spouse so their share of the appreciation is added to the basis.
Publication 523 talks about adjustments to basis when a spouse dies. http://www.irs.gov/publications/p523/ar02.html#d0e897
Generally, you get a step up in basis for the spouses half. But it is even better if you live in a community property state--the entire value of the home gets a step up.

(Watch out though, I think there is a step down in basis if the value of the property has dropped from when you bought it.)
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Re: Loss of spouse
Old 12-03-2006, 12:01 PM   #14
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Re: Loss of spouse

My brother-in-law lost his wife 4 years ago. His expenses actually have reduced by about 25% from not buying new furnitures, appliances, home decorations, less on clothing and grocery. He still have two kids. However, his financial situation has improved significantly since she had taken a $1.25 million life insurance policy 6 months before her death. The government (or social security) has been paying over $1,200 (may be more) per month for each kid. Needless to say, he does not have to work but does part-time for health coverage.
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