Do you model loss of one spouse?

[kcowan]

I have a paid up whole life policy that will more than make up for the lost social security income if she annuitizes the death benefit. So, no matter who dies first, the survivor will continue to have the same income, and the portfolio will be large.

I have taken the same approach. While it was adequate upon retirement, it is more than adequate now but I am fine with that. I have modeled my death 10 years prior to hers and she is still easily whole.

 

[corn18]

I model it in my spreadsheet.

Income:

My COLA pension is 55% survivor.
SS is reduced

Expenses:

She keeps free healthcare for life.
I reduced base expenses 80% (food, gas, clothes, etc...)but left everything else at full value.
Travel is not reduced.

Life Insurance

I have a $500k term life insurance policy that I got years ago that is good through my age 78. I have kept that for now because it's cheap. Just make sure you enter the amount of life insurance paid out to match whatever type of dollars you are using in your model. $500k today is not the same as $500k 23 years from now (it's actually only $323k assuming 2% inflation). That bit me early on.

Taxes

I also model the impact on taxes and RMD's. If we do no Roth conversions between now and 72, it really impacts her taxes if I die because the RMDs are now taxed at single rate. As long as we do conversions, her RMDs will be small and there is minimal impact on single taxes.

Keeping the life insurance makes life easy. If I die before 79, she gets money and continues on without a worry. After 78, we need to make sure there is enough savings to cover the difference between income and expenses (about $10k / year). That doesn't take a lot of savings if you start @ 78.

 

[Sunset]

I am new to this forum and haven't seen any thread since I joined. I will share with you my own model as I run everything off an Excel spreadsheet to project income and expenses. Nothing to "plug in" as my spreadsheet is for our situation.

It is always about income >= expenses.
A) Current model is for 2 people:
- Hushand's SS + Wife's SS + Wife's Annuities + Husband's RMD. RMD constitutes less than 2% of total investments. This income is sufficient to meet expenses into the forseeable future. Both husband and wife have LTCI.

B) Husband passes away first
- Husband's SS (survivor benefits) + Wife's Annuities + 1% of total investments (before 72 yo taxable account, after 72 yo from RMD and leftover will be reinvested). Expenses will be reduced by Husband's medical insurance, half of food and groceries. Full amount of current household expenses (utilities, property tax, HOA, insurance etc). Country Club membership is likely to be dropped to sports and social member level and switched to playing public golf courses if so desired. $20K travel expenses will be reduced to $5K and all timeshare will be sold.

C) Wife passes away first.
- Husband's SS + Wife's Annuities + Husband's RMD
- Expenses will be reduced by Wife's medical insurance, food and groceries to drop by 30% (Husband drinks and wife does not) and timeshare will be sold reducing much of the travel expenses. Husband will continue with Country Club membership. Full amount of household expenses.

Hope this helps.

I suppose most of your travel is currently to the timeshare(s).

But I think $20K to $5K travel change is pretty drastic, as I've noticed traveling single is about 75% of the cost of traveling as a couple.

Example, hotel rooms charge practically the same. Cruise ships charge about 75% of the cost. Taxi etc are the same price or 96% the same price when flat rate.

I do like your analysis of the changing situation.
I would think cost of household repairs would dramatically increase for any non-handy spouse left alive as usually 1 spouse is handy at fixing things.
The cost of hiring a handyman for simple stuff easily adds $100 or more to any simple chore.

Example: clean out gutters will cost $125->$150 , currently I do it free.
Mow grass, I often do it free, costs $600->$700 per season.

Of course if nobody is handy, then the cost would remain the same, its a very situational thing.

 

[pb4uski]

... If my wife were to pre-decease me, I think I'd be just fine. I'm more concerned with me going first, which is also statistically more likely.

I'm curious to hear how you all factor that in.

Yes, I do factor that in. Since my plan is in Quicken Lifetime Planner I can easily do a What-If that excludes DW's SS and the same spending and the end result isn't much different.

Her taxes will be higher... abut 13% of annual spending for the two of us... but her expenses will be lower because 1 rather than 2.... so net, she should be fine. BTW, my pension is joint life so there will be no change there, but the pension is only 18% of our expenses.

 

[Romer]

I have modeled if I go first with changes to tax rates (single), change to my pension and lower expenses for her vs us. It was conservative assuming she stayed in this house which I doubt she would. It also had a significant buffer for yearly expenses/income and she being much much more frugal than I am I doubt she would even need that. That only provides a better cushion for her.

She really doesnt want to learn about finances so I felt I needed to run the model and develop a list of instructions on what she needs to do.

She will be fine if I go first which makes me feel better that I have provided for all scenarios. I will be fine if she goes first as well

 

[volfan]

On some retirement calculators you can input a start year and stop year for SS. I play around with this to see what happens if one SS stops after X number of years. I usually do this for the early years between 62-72. I am hoping I can convince spouse for us to take mine at 62 and for him to wait until at least 67. But he has the mindset of wanting “his money” as soon as it is available, though it is detrimental to the big picture. Not fatally detrimental but with less desirable outcomes. It would be used for living expenses instead of our investments so it’s not like we would save it.

Also when you look at some of the expenses you drop you have to remember that savings could be absorbed through the additional taxes one pays as Single. Especially when survivor pensions are involved and there is no way to manipulate income.

 

[MarieIG]

Absolutely.

I haven't modeled in a while; but everything I do takes spouse into consideration. And since I'm the financial overseer, I explained to DH what he needed to do, and he has been agreeable.

We are postponing DH's SS until age 70 as he has the better earning history. I have repeatedly told DH if I pass, to take his widower's benefit right away, and let his benefit grow.

DH took a hit on his pension to get the 100% joint & survivor for me. Had I signed a waiver of his pension, I would have also lost health insurance in the event he passed first.

I have a small variable annunity (with a death benefit) it used to be Vanguard, and is now Transamerica. When I trigger it, I will buy the rider for a guaranteed minimum payout, and will also do a 100 percent joint and survivor.

DH has a lifetime income fund through his job. The plan is to trigger a lifetime payout, with 100 percent joint and survivor around age 70.

We are looking at Roth conversions on my IRA between now and age 70 to reduce RMD. This would benefit us either as a couple, or the surviving spouse.

To the extent that I am buying any additional funds in taxable accounts, I am looking at funds that generate less tax.

One thing to be considered, is the financial prowess of each spouse, as well as potentially, an inability to handle a complicated portfolio due to advancing age. I would like our base income streams to be on auto-pilot by age 70 -72.

I do not see much of a reduction in expenses, (less food, and a reduction on health insurance vs. higher taxes) and we would want to contribute to grandchildren's education. With regard to vacations a single might want to travel first class, as we become less able to travel, we might want to rent a vacation home and have the kids come to us. DH has always done a lot around the home, and I would have to hire somewhat to do that. Conversely, buying into a good assisted care facility would not be cheap.

 

[youbet]

. It would be used for living expenses instead of our investments so it’s not like we would save it.

So, if you don't start SS early how will you pay for living expenses?

 

[pacergal]

We have discussed "what ifs".
We both took 100% survivor for our pensions, so that value will be continuous for life for both and single survivor. Our basic monthly budget is based on this value.
Our savings will still be there
What we will lose will be the others SS, we figured reduced cost of living will offset, but also realize potential higher taxes as a single.
We do not have LTC insurance, but have discussed selling the house to use as needed, and the other spouse would still have the pension income, investments and SS.

 

[MarieIG]

We have discussed "what ifs".
We both took 100% survivor for our pensions, so that value will be continuous for life for both and single survivor. Our basic monthly budget is based on this value.
Our savings will still be there
What we will lose will be the others SS, we figured reduced cost of living will offset, but also realize potential higher taxes as a single.
We do not have LTC insurance, but have discussed selling the house to use as needed, and the other spouse would still have the pension income, investments and SS.

Two pensions, two social securities and income from investments may actually pay for LTC of one spouse, without necessitating the second spouse to access house equity (which may have some "protection") vis-a-vis health care expenses. In turn, the home equity could be used to fund an assisted living facility for the second spouse, if LTC is not needed.

We also do not have TLC insurance, and this is one of the reasons, we are looking to backload (and thus bump-up) some of our income streams; which also provides the benefit of allowing for some Roth conversions in the interim.

 

[daylatedollarshort]

We aren't big spenders now, so we don't anticipate any financial issues ahead. The only income lost would be the lower SS benefit, offset by lower expenses with a household of one instead of two. The surviving spouse would still have the higher SS benefits, the pension income with survivor benefits, the portfolio income and would likely rent out the current house. The house rental income alone would be enough to cover the house expenses plus all of one spouses' annual living expenses with renting a condo in a retirement community.

 

[TheWizard]

I'm divorced for twenty years and plan to stay single, so this is an academic question for me.
But there seems to be two extremes for the death of one spouse problem.

The first is the sad one, with the loss of the one SS and maybe a pension, such that surviving spouse can no longer stay in the current living situation and needs to reduce expenses considerably.

The second is the more common one on forums like this, where the survivor's income, including RMDs on a good sized tax-deferred egg, is just a bit less than when MFJ, resulting in higher taxes and IRMAA when filing single henceforth.

The latter can be mitigated to a degree by NOT setting up pensions and annuities to go 100% to survivor.

Situations vary, but I'm guessing if the survivor had around 75% of the AGI they formerly had as a couple, then lifestyle financial impact would be minimal...

 

[Sunset]

We have discussed "what ifs".
We both took 100% survivor for our pensions, so that value will be continuous for life for both and single survivor. Our basic monthly budget is based on this value.
Our savings will still be there
What we will lose will be the others SS, we figured reduced cost of living will offset, but also realize potential higher taxes as a single.
We do not have LTC insurance, but have discussed selling the house to use as needed, and the other spouse would still have the pension income, investments and SS.

Depending on the situation, I think selling the house might not be a good move.
Assume in LTC, ensure the person gets into one that takes medicaid after all money runs out. This is important as this situation can drain a HUGE amount of money.

Once you spend all the savings... medicaid considers married folks separate money as marriage money an available for the LTC, so practically all the money will be available to be spent.

I'm vague on this but with a spouse living in the house, medicaid will only put a lien on the house and recover what they can when it sells. Their lien could be more than the house value.

If instead one sells the house after savings are gone, then the spouse has to move somewhere, and LTC takes all the sale price, and then the person is still going on medicaid.

 

[athena53]

<snip>

DH took a hit on his pension to get the 100% joint & survivor for me. Had I signed a waiver of his pension, I would have also lost health insurance in the event he passed first. <snip>

I'm glad that regulations in most (all?) states require that waiver now. I filed for a pension in my name when DH was in his last months and we had a notary come to the house so he could sign off on the version with no survivor benefit.

I do not see much of a reduction in expenses, (less food, and a reduction on health insurance vs. higher taxes) and we would want to contribute to grandchildren's education. With regard to vacations a single might want to travel first class, as we become less able to travel, we might want to rent a vacation home and have the kids come to us.

DH and I were already flying Business Class on long-hauls so airfare spending is down. I use one tour group (Overseas Adventure Travel) that does not charge a single supplement and a cruise line (UnCruise) that does. So, I'm probably spending less for the equivalent amount of travel but, as you noted, more on taxes and not much reduction in food or utilities.

 

[CRLLS]

Of course we considered it. Since we both rolled our pensions and 401K's into IRA's, that income stream would not change. SS would be reduced to the higher of our benefits regardless of who goes first. Taxes will of course change. But then again, expenses for food, clothing, cars, hobbies etc will be reduced. For all intents and purposes our survivor's income and expenses will be essentially the same regardless of which of us are the survivor. We have a lot of fluff in our anticipated expenses. Our plan is based on a flat expense (including inflation) throughout our existence, not a declining one as some use. If we were cutting our plan more tightly, I would be more concerned and do a more detailed evaluation. Of course a plan doesn't guarantee anything.

 

[skyking1]

If we can't stay in our home due to one of us needing LTC, the house will be sold and the able person would not want to maintain it by themselves anyway. The spouse would secure an apartment near the care facility.
It all sounds so cut and dried, but we are being practical about it.
We are opting for 75% survivor on the pension, but are maxing out one SS for the surviving spouse.

 

[jollystomper]

I modeled the situation when deciding what level of pension J&S benefit I should take. 75% worked out as the best combination for money now and leaving enough for DW if I die first. If she dies first my pension gets restored to the 100% survivor level.

It is also a reason why my current plan is to delay SS to maximize the survivor benefit. Currently, at 65.5 years my SS survivor benefit + my pension would cover her regular expenses and still leave a lot in savings/investments for "extravagant" spending. But unless there is a true need to take them, I'll delay until sometime after that.

 

[skyking1]

^Pretty much our situation, a few years down the road.

 

[brett]

No, money will not an the issue.

What I did do is arrange our affairs and consolidate investments so that it would be very easy for her to step in and move forward should I fall off my perch.

 

[Romer]

I'm glad that regulations in most (all?) states require that waiver now. I filed for a pension in my name when DH was in his last months and we had a notary come to the house so he could sign off on the version with no survivor benefit.

We selected the 10 year and continuous Pension which if I pass she gets it until age 70 and then SS will come in to play. Even without SS or at a reduced level she would still be fine according to my model

She did sign a waiver. I went through all the math as the default is 50% survivor. She felt based on my family history of living long that would be leaving money on the table. I wasn't comfortable going with 100% no survivor so we compromised.

 

[roadtripper]

Yes. We started killing off DH in modeling a few yrs before he retired.

This cracked me up

I told DH if he goes at 66 I will be pissed. SBLI ends at 65.

 

[skyking1]

If my wife does not sign, there is a default 50% survivor benefit minimum. If she signed away her interest, she would still get to draw the first 5 years of it if I left the scene. She can purchase the retiree medical indefinitely and use that for an expensive but excellent medicare supplement after she is eligible, or go on the market.

 

[googily]

We never did any modeling before DH died at 55 four years ago, but many times we mentioned that one of the benefits of still being in the house we bought in 1995 was that the small mortgage would allow "us" to stay in the house even on one income. And it has turned out to be correct.

My living expenses are covered by my income and a very small pension that our employer was helpful enough to have him file for "early retirement" with 100% joint and survivor, so that when he died, the paperwork for the planned "retirement" was already in place.

But with most of the travel and fancy meals and high living not happening, I suppose it's technically a lower standard of living, so if I were a widow who would have wanted to keep doing all of that I would be dipping much more into the savings that were his and mine and are now mine.

In fact, I need to up my Dough Blowing.

I have been most "grateful" that I have not had to move, or watch my spending. Losing a spouse is terrible enough--I can only imagine the anger at losing your level of living as well. (Compounded by 1000% if it could have been avoided by some prior planning.)

 

[RetiredHappy]

I suppose most of your travel is currently to the timeshare(s).

But I think $20K to $5K travel change is pretty drastic, as I've noticed traveling single is about 75% of the cost of traveling as a couple.

Example, hotel rooms charge practically the same. Cruise ships charge about 75% of the cost. Taxi etc are the same price or 96% the same price when flat rate.

I do like your analysis of the changing situation.
I would think cost of household repairs would dramatically increase for any non-handy spouse left alive as usually 1 spouse is handy at fixing things.
The cost of hiring a handyman for simple stuff easily adds $100 or more to any simple chore.

Example: clean out gutters will cost $125->$150 , currently I do it free.
Mow grass, I often do it free, costs $600->$700 per season.

Of course if nobody is handy, then the cost would remain the same, its a very situational thing.

In addiiton to timesharing, we did (mainly) international cruising for about 4 years after we retired, and our travel expenses ran about $40K per year during those years. With COVID, we have decided we are pretty much done with cruises. We timeshare and always golf and dine at our favorite restaurants. If one of us is gone, I don't think either of us have the desire to travel alone. Traveling alone is no fun for us. The $5K will cover my traveling to see my son and maybe have some trips with him. I have gazillion points in my United and Marriott accounts from years of business traveling, credit card spending and timeshare point conversion. When we do stay at hotels, they are usually free. We also fly first class using points, otherwise we don't fly.

My husband is not handy at all and neither am I so we pay for maintenance folks to do the yard, pool, HVAC filter cleaning/maintenance, soft water company to check the system once a year.

 

[MichaelB]

It makes a lot of sense to use a tool like FIRECalc to model or project the impact of one spouse passing. If pensions represent significant percent of total income this modeling is more important and is critical when Social Security is the primary income source. As pointed out earlier, tax rates are also higher when filing as a single adult.

Those of us with mostly portfolio based income have less need to model. In fact, the same portfolio with just one spouse reduces the financial risk of running out of money and increases the likelihood of more money left for heirs. Please don’t tell DW or the kids, one of my rules has always been to avoid situations where others benefit from my early demise.

One thing not mentioned yet in this thread but also related to surviving spouses is portfolio management. Many of us manage the nest egg and have spouses not really interested in learning to do so. In that case it makes sense to leave some kind of instruction or suggestion on how the portfolio should be invested and used to fund ongoing expenses.