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Retirement -- Financial Planning for the Survivor.
Old 08-20-2008, 03:15 AM   #1
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Retirement -- Financial Planning for the Survivor.

How many have a Financial plan in place that considers the death of a spouse? Often people are relying on SS or Pensions where the stream of income stops or diminishes after a spouse dies.

This happened to my mother. When my father died, the income streams cut by 30 to 40%. Of course, the house was paid off and they had a small nest egg. But she was very concerned about dipping into the nest egg so she tried to make do spending less money... and she worried about it a lot. On the positive side... she had a large enough nest egg to give her some cushion for emergency expenses or other large repair expenses like repairs to the house, etc.


For people who have smaller portfolios and rely on SS heavily (or even pensions)... the death of one spouse can put the survivor in a very precarious position. For a simple example: If both spouses draw $16k/yr from SS, they receive in total $32k per year. Let's assume the couple have a small nest egg of $200k. Between them they spend $40k/year. They are taking 4% of the 200k. At 67 one of the spouses dies. Now the survivor has $16k/year from SS. Add the extra $8k. The survivor has $24k/year. However many of the expenses are fixed (not variable based on # people). Yes, food and medical expenses may go down, but many other expenses remain the same. Can the survivor maintain the basic lifestyle on $24k? Or will they need to begin taking a higher % from the portfolio? Hopefully the medical problem (costs) did not diminish the portfolio for the spouse that died.


The situations becomes even more problematic if the couple ERd at 55 and one dies even earlier. Bottom line, the survivor is very likely to be in a situation where they need to go find a job at an older age. Plus, If the survivor has been out of the work force for a while, they have little chance of acquiring the previous wage level (e.g., will probably work at WalMart).


Every couple should have some sort of contingency plan (and resources set aside) to support the survivor if the income of one of the spouses stops due to death. If one has sufficient money (portfolio size), they should be fine. If not, it can be done with Life insurance. Of course, you can only get life insurance if you do so while you are healthy (but it comes at a cost).

The bottom line, is if this is not done someone will be at risk of having a diminished lifestyle (perhaps at the poverty level) or going back to work (if they are healthy and able). And that survivor could be you!


How are you dealing with this aspect of planning?
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Old 08-20-2008, 06:43 AM   #2
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In our situation the loss of either me or DW results in an income reduction of about 15% and that would be the loss of DW's SS. All other income streams would continue as before. Income streams include my pension (100% joint), 2 SS and nest egg returns.

The returns off the nest egg are the only part of the income stream that has to be managed and that's simple since it's all in CD's. The only thing you have to do is seek out the highest rate and go for it. DW is an expert at sniffing out the highest rates. Anything above 3% and we are good to go for 30 years at the max burn rate. Actually it will probably last longer than 30 years since we are only at the 50% burn rate now.
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Old 08-20-2008, 07:01 AM   #3
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Likewise here. DW goes, would only be about a 12% loss in income. I go it would be about a 35% drop in income, however, the no debt, home is paid for, car is pretty new (and paid for), nest egg is all in CD's at some pretty good Credit Unions (#1 and #3 in deposits) and one good bank - usually out 7 to 10 years returning good rates. She is 70 I am 68 (soon) we could live off of SS, Pension and nest egg and not even need to "rate shop". At current "burn rate" adjusted upwards 5% a year it would last about 45 years (neither of us plan to be here at ages pushing 120). Nope, no poverty for either one of us -BTW medical care is fully paid for - no co-pays, no deductibles. Could probably weather a nursing home for either/both of us (No LTC). The "plan" has always considered the "fact" I would go first and she would survive me. I saw too many situations OP is suggesting - larger income provider goes and survivor has a tough financial time ahead.
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Old 08-20-2008, 09:49 AM   #4
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Life insurance works well for those concerns.
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Old 08-20-2008, 10:03 AM   #5
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We are still in the accumulation phase, but have looked at scenarios where one of us goes early. Right now our contingency plan is life insurance on DH, since it's his pension that will let us RE. Once we retire we'll see if we still need the life insurance or if we've saved enough that we're ok without it. No kids, so nothing to worry about there.
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Old 08-20-2008, 10:42 AM   #6
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We are still in the accumulation phase, but have looked at scenarios where one of us goes early. Right now our contingency plan is life insurance on DH, since it's his pension that will let us RE. Once we retire we'll see if we still need the life insurance or if we've saved enough that we're ok without it. No kids, so nothing to worry about there.
Keep in mind that insurance rates are age-based, and health plays a factor. I know many folks that NEED life insurance, but are too sick to get it............
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Old 08-20-2008, 10:50 AM   #7
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We are still in the accumulation phase, but have looked at scenarios where one of us goes early. Right now our contingency plan is life insurance on DH, since it's his pension that will let us RE. Once we retire we'll see if we still need the life insurance or if we've saved enough that we're ok without it. No kids, so nothing to worry about there.
We each bought a 20-year term from GenWorth. We structured it such that we'd be able to maintain our current standard of living. No kids, bought when I was 26 and she was 25. Between life insurance from our employers and GenWorth, she gets $1.5mm if I go and I get $500k if she goes. She gets much more of the AD&D pays out too.

Hmm... I'd better sleep with one eye open.
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Old 08-20-2008, 11:14 AM   #8
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My company pension had no survivorship for DW so I bought life insurance to fill the gap. She will get the same income should I die prematurely. Ultimately it will be a part of my estate no matter what. I used the guaranteed insurability clause of the company key man insurance but I was in such better shape from my post-retirement lifestyle that I got a better rate than the company ever got.
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Old 08-20-2008, 11:45 AM   #9
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I tell my DW that she better watch her weight and appearance because she'll need another husband to support her after I croak.

Actually, since most of our retirement will be funded with our assets, she won't see too much of an income loss. She'll get 50% of my $15K/yr pensions and will "lose" her SS but get mine. Overall, she'll see less than a 30% drop in cash. Worst case scenario is that she won't be able to afford to take along a "boy toy" on any fancy vacations.

If she croaks, I'll lose her 50% of my social security payment. That would be insignificant. I'd be able to afford "companionship" on my fancy vacations.
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Old 08-20-2008, 02:04 PM   #10
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I tell my DW that she better watch her weight and appearance because she'll need another husband to support her after I croak.

Actually, since most of our retirement will be funded with our assets, she won't see too much of an income loss. She'll get 50% of my $15K/yr pensions and will "lose" her SS but get mine. Overall, she'll see less than a 30% drop in cash. Worst case scenario is that she won't be able to afford to take along a "boy toy" on any fancy vacations.

If she croaks, I'll lose her 50% of my social security payment. That would be insignificant. I'd be able to afford "companionship" on my fancy vacations.
get insurance to cover her 30% drop in income, and its a horse apiece.......
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Old 08-20-2008, 02:32 PM   #11
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This topic is a big concern that many folks do not think about. I have asked new posters a few times "What happens when you die and your spouse has less income?"

And my BIL died this year and my sister is without his pension money. Thankfully, she finally took family advice a couple years ago and bought insurance on his life. But apparently not enough to replace his pension. Sigh.

For us, we have no life insurance and no pensions and do not draw SS. So if either one of us died, income would not change for the other. If we both died, the kids will have a party do just fine financially. But it's something we have monitored.
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Old 08-20-2008, 03:41 PM   #12
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How many have a Financial plan in place that considers the death of a spouse?
For a minute there I thought you were relying on the spouse's death to fund your retirement. I wasn't so sure that I wanted my spouse to read this board anymore.

JG's financial planning depended on his spouse bringing home the money (for him to live on) while he preserved his own assets (to live on after he divorced her). So to some extent his retirement planning considered his spouse in a way that she wasn't expecting.

Azanon expects his hot wife to have no problems replacing him when he's gone. I'm just not sure how much of a long-term plan he has.

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How are you dealing with this aspect of planning?
Spouse and I each have our own pensions, so neither of us is counting on the other's survivor benefits.
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Old 08-20-2008, 03:50 PM   #13
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Since I was widowed at 51 , I can tell you it is an important factor . I was not retired when my husband died but he had recently retired . I lost 40% of his pension and of course his SS . We both had assests so my finances took a hit but not a drastic one .
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Old 08-20-2008, 03:56 PM   #14
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I could elect a reduced benefit from the paltry company pension and keep the monthly checks coming for DW after I'm gone. Instead I decided to use life insurance. I want the company to pay at 100% until the end. The pension's not COLA'd anyway. So the longer I live, the less it will be missed.
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Old 08-20-2008, 04:09 PM   #15
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IMO, most "people who have smaller portfolios and rely on SS heavily (or even pensions)" would probably be well-advised to reconsider whether ER is realistic.
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Old 08-20-2008, 04:16 PM   #16
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I actually did give a lot of thought to ensuring my wife would not have to eat cat food if I were to die before she does.

If my wife predeceases me, I will have no financial problems - the loss in income will be about $1500/yr. since I would keep my pension and Social Security. If I predecease her (statistically, the more likely scenario) she will have:
- a paid off house (albeit with hefty property taxes, this being the Peoples' Republic of VT). Since we have so much land that takes time to care for, I suspect she would sell the house and downsize.
- a survivor benefit plan that I enrolled in when I retired from the Navy that will provide her about $25K/yr. I opted for a lower than maximum SBP level, aiming to provide her about $20K at the time I retired; that amount has increased by about $5K due to annual COLA adjustments.
- minimal Social Security (which she can start taking early at her next birthday.) She didn't work that many years and never earned really big bucks, so her SS won't be huge. Part of the SBP may be offset (reduced) when she takes SS but the worst case is that SS will add a few thousand bucks to the SBP.
- a nest egg that will allow her take withdrawals which, when added to the SBP/SS, will begin to approach what we annually spend now. (We've been fortunate that we haven't needed to take very much at all from the nest egg since we both retired.)
- medical care for life, unless she were to remarry.
- a LTC policy covering a good portion of up to 5 years in a nursing home after she pays the first $30K (which she could take from the nest egg).
- enough life insurance to plant me in the ground, but not a lot more.
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Old 08-20-2008, 04:26 PM   #17
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welll - I had it set up properly.

First Katrina and then everybody died in the wrong sequence.



heh heh heh - and now I can't be a cheap bastard anymore - cause you can't take it with you and somebody has to spend the money - unless I create an heir or 'discover' a charity I truly love. . But it's always good to have a plan - even if it doesn't work! .
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Old 08-20-2008, 04:29 PM   #18
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The best-laid plans of mice and men often go awry

It's important to take steps to make sure the income is there, but also the know-how to deal with the assets. It's this last part that I'm concerned about.

OTOH, I would caution folks here to make sure to not overdue it. In other words, if one is worth more dead than alive, that just opens a pandoras box of temptation - and there's no need to tempt the devil. I make sure everybody knows (wife, children, other family) that I'm worth more than alive than dead. It may not be true but at least they believe it (I think, I hope - time will tell).
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Old 08-20-2008, 04:33 PM   #19
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Keep in mind that insurance rates are age-based, and health plays a factor. I know many folks that NEED life insurance, but are too sick to get it............
Yes, thanks, obviously a risk. If things go according to plan, we'll be in our early 40's when we FIRE, so I would hope to still be ok at that point. Of course you never know, which is why we also are trying to save at a rate that will make us self-insured.
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Old 08-20-2008, 04:39 PM   #20
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No pensions here. DW & I live off our investment portfolio. Theoretically, if either of us croaked, the other would have the same income with slightly less expenses. Realistically, DW would get swindled end up paying a money manager as she has no interest. I've left her a list of fairly reputable firms in the envelope with my will.
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