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Don't forget the survivor plan
Old 12-09-2019, 01:40 PM   #1
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Don't forget the survivor plan

So, I have my retirement model all set up in excel and did a bunch of what ifs. Basically, as long as I slid into SS @ age 70 with $1, pretty much anything I did would work. SS+COLA pension covers all my expenses with a little room to spare.

I took that info and started running retirement date scenarios. Turns out I can retire @ 55 (2021) if I VPW to zero dollars @ age 71. That sure gives me a lot of money to blow in 15 years. YES!!!!



But then I got to thinking about what happens if I die. My SS benefit is greatly reduced (she has no SS). My pension goes to 55%. And then there are taxes. Hmmm, let's plug all that in:



Sorry hon, it was a good ride. If she dies first, no problem. If I die first, YIKES!!!

I do have laddered term life policies out to age 78, but inflation eats them up pretty bad.

So, now to think about how to break this to my wife. Or what to do to fix that "you go broke, but I'm dead so what do I care" chart.

UPDATE:

Turns out I will need to work longer and save more to prevent survivor poverty. I did reduce her spending by 20% vs. both of us, but even that didn't get her to 100. That sucks. Glad I looked, because I was making big plans for retiring in a little over a year and spending like a madman.
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Old 12-09-2019, 02:12 PM   #2
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Will your wife have spousal SS benefits?

My understanding is that if you die, she would qualify for 100% of your benefits?
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Old 12-09-2019, 02:13 PM   #3
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"Sorry hon, you gotta get a Jay Oh Bee"
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Old 12-09-2019, 02:17 PM   #4
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Will your wife have spousal SS benefits?

My understanding is that if you die, she would qualify for 100% of your benefits?
Survivor benefits are in the plan. She will lose her spousal benefits and switch to survivor benefits which is a reaction from $57k / year to $41k / year. My pension drops from $48k / year to $27k / year. So her benefits are reduced from $105k to $68k. If she can reduce her expenses by 35%, she should be set!
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Old 12-09-2019, 02:18 PM   #5
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"Sorry hon, you gotta get a Jay Oh Bee"
Or "Hon, why don't you work another year so I can survive?"
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Old 12-09-2019, 02:26 PM   #6
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Survivor benefits are in the plan. She will lose her spousal benefits and switch to survivor benefits which is a reaction from $57k / year to $41k / year. My pension drops from $48k / year to $27k / year. So her benefits are reduced from $105k to $68k. If she can reduce her expenses by 35%, she should be set!
Have you established a budget for her as the survivor?

The last of several budgets/phases in my budget spreadsheet calculated how much it would cost my spouse to maintain the same standard of living without me, from my age 100, to hers (she's younger); For her, the reduction in food and insurance costs meant a reduction from a $91K budget (for both) to a $72K budget.
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Old 12-09-2019, 03:28 PM   #7
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Have you established a budget for her as the survivor?

The last of several budgets/phases in my budget spreadsheet calculated how much it would cost my spouse to maintain the same standard of living without me, from my age 100, to hers (she's younger); For her, the reduction in food and insurance costs meant a reduction from a $91K budget (for both) to a $72K budget.
I haven't. To be honest, I'm not sure what I would cut. Health insurance is free for us (military retiree). I can cut food, car ins, maybe a bit more elsewhere. There isn't $37k to cut.

But that's ok. 55 was a dream. But we save about $200k-$250k / year, so working 2 more years to 57 puts us in a very fat fire position. And she won't have any money worries when I die. So back to the original plan.
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Old 12-09-2019, 03:33 PM   #8
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Survivor benefits are in the plan. She will lose her spousal benefits and switch to survivor benefits which is a reaction from $57k / year to $41k / year. My pension drops from $48k / year to $27k / year. So her benefits are reduced from $105k to $68k. If she can reduce her expenses by 35%, she should be set!
So you're gravely concerned that your DW can't survive on $68k a year plus whatever other income/resources that you have? IIRC that is more than the average household income.

I would think a single person should be able to live pretty well on $68k a year, especially if they have a paid off home or other financial resources.
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Old 12-09-2019, 03:36 PM   #9
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Pb, I was thinking the very same thing.
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Old 12-09-2019, 03:43 PM   #10
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So you're gravely concerned that your DW can't survive on $68k a year plus whatever other income/resources that you have? IIRC that is more than the average household income.

I would think a single person should be able to live pretty well on $68k a year, especially if they have a paid off home or other financial resources.
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Pb, I was thinking the very same thing.
Well, that's not our plan. We have a base budget of $110k and will decide each year how much above that we want to spend on travel and blow that dough. Right now, that is $25k until age 70 and $12.5k from 70-80. That is the lifestyle we have chosen. If someone wants to live on an average income, that's fine, but that's not our goal.
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Old 12-09-2019, 04:01 PM   #11
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What I wonder would she be doing a lot of traveling without you? Except for cruises I wouldn’t want to travel alone.
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Old 12-09-2019, 04:07 PM   #12
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"Sorry hon, you gotta get a Jay Oh Bee"
Or, "Pack your bags, hon, I'm retiring!"

Wife: "Oh, fantastic, where are we going?"

You: "I don't care, just pack your bags and go!"

Anyway, better to discover this now than once retired.
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Old 12-09-2019, 04:11 PM   #13
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Although I'm older than you I've been through the same thought process. I took military SBP at a lower level than you (35%) and took SS at 62. (I would do things differently if I could redo them but can't walk that dog back).

One thing that fits into my planning is an annuity. I bought a low-fee VA years ago and it did very well over the years. A year ago I did a 1035 exchange to a Navy Mutual Aid Association annuity that can't lose nominal value and should keep up with inflation. Although it's in my name I don't plan to annuitize it in my lifetime as I don't need the income. If I die first she, as the beneficiary, will become the owner and can annuitize it for another income stream.

Also, don't forget that someday RMDs will kick in. That's another income stream and I assume she is beneficiary for anything you've socked away in your civilian plan. Plus, whatever your taxable savings/investments throw off.

I will PM you about one other thought.
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Old 12-09-2019, 05:31 PM   #14
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Pb, I was thinking the very same thing.
Me too, heck that's pretty much what I'm planning on for two of us.
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Old 12-09-2019, 06:14 PM   #15
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I haven't. To be honest, I'm not sure what I would cut. Health insurance is free for us (military retiree). I can cut food, car ins, maybe a bit more elsewhere. There isn't $37k to cut.

But that's ok. 55 was a dream. But we save about $200k-$250k / year, so working 2 more years to 57 puts us in a very fat fire position. And she won't have any money worries when I die. So back to the original plan.
Good on you. You'll survive working a couple more years. Well, if you don't, it won't be the work that killed you, and your decision is well justified. When you DO retire, it will be a nice feeling when you lay your head on your pillow at night that you took care of this.
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Old 12-09-2019, 07:59 PM   #16
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I haven't. To be honest, I'm not sure what I would cut. Health insurance is free for us (military retiree). I can cut food, car ins, maybe a bit more elsewhere. There isn't $37k to cut.

But that's ok. 55 was a dream. But we save about $200k-$250k / year, so working 2 more years to 57 puts us in a very fat fire position. And she won't have any money worries when I die. So back to the original plan.
Good call. One of the promises I made to the young wife almost 36 years ago is that I would always take care of her. That includes after my death. So I have arranged things accordingly.
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Old 12-09-2019, 10:51 PM   #17
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Well, I spent the night modeling my retirement cash flow by year. Turns out taxes are a wash whether I am dead or alive. While she can't convert as much 401k early on, her income is reduced a lot so there is no SS + RMD tax torpedo. That was interesting.

I also took out the spending for a second car. Forgot about that one. That makes a big difference ($6k / year). I did reduce her base spend by 10%. That works out great if I retire @ 56, so that is good news.

I found it interesting that the worst time for me to die is between age 67 and 70. All but one term life policies are gone and she is 4 years younger than I am, so that is a valley for her benefits. If I live to 71, she will get full SS survivor benefits. Now I jinxed myself.

And I'll say it once again: inflation kills life insurance. My $500k term policy that expires @ age 78 is only worth $246k in today's dollars (assuming 3% inflation / year).
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Old 12-10-2019, 08:49 AM   #18
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Well, that's not our plan. We have a base budget of $110k and will decide each year how much above that we want to spend on travel and blow that dough. Right now, that is $25k until age 70 and $12.5k from 70-80. That is the lifestyle we have chosen. If someone wants to live on an average income, that's fine, but that's not our goal.
Fine, then keep working.
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Old 12-10-2019, 08:50 AM   #19
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.... I found it interesting that the worst time for me to die is between age 67 and 70. All but one term life policies are gone and she is 4 years younger than I am, so that is a valley for her benefits. If I live to 71, she will get full SS survivor benefits. Now I jinxed myself.

And I'll say it once again: inflation kills life insurance. My $500k term policy that expires @ age 78 is only worth $246k in today's dollars (assuming 3% inflation / year).
Buy more life insurance.
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Old 12-10-2019, 09:21 AM   #20
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Fine, then keep working.
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Buy more life insurance.
Now that I can model the finances in the event of my death, it's not nearly as bad as my first look. I talked to my wife about it and we can still retire @ 55 even if I die at 67. Just requires more careful planning than if I die today.
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