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Insurance to cover first-to-die spouse's SS payments?
Old 06-09-2021, 12:56 AM   #1
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Insurance to cover first-to-die spouse's SS payments?

Couples who's SS payments are about equal face having the survivors' SS income cut in half, and often a higher tax bracket to take even more away.

I can't fathom why that has not been addressed by now, society having moved from one worker to two.

So are there any solutions?
Maybe a "first to die" insurance policy/annuity that pays in installments not lump sum? Other ideas?

A 65 year old female paying $120,000 today gets $1040 a month for life starting in 10 years. A male gets $994 for $100,000. So a price "per thousand" baseline based on an annuity.

So for a couple, it would spend down about half a million to cover SS worth $2000 each, but before that 10 years of inflation.

At 2%/year, that's 0.98^10 = 81.7% so $817 per thousand real.
So about $3200 real but it continues to erode.

Normally insurance keeps gaining cash value.
What about an insurance policy whose value & payout are capped (with a COLA), so after a while the premiums should fall, maybe to nothing; and it is an annuity payable on death to the surviving spouse.
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Old 06-09-2021, 04:05 AM   #2
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I agree that this is a huge issue.

In addition the costs may likely increase for the surviving spouse in that many of the tasks performed by the deceased spouse may need to be paid services for the survivor.

We partially hedged this by purchasing maximum employer/group life insurance on each of us.

IMHO, there should be an actuarial neutral option to reduce both spouses amount at claiming that will allow payments to continue until both have passed (like the 100% survivorship option available in some defined benefit pensions).

Years ago, I never included the SS benefits when I performed my "retirement readiness" calculations. When the SHTF and ER became a possible scenario, I began studying the value of SS and realized it made a huge difference in our retirement readiness.

I think DW and I together are scheduled to receive over $80,000 per year currently (in real terms) combined SS benefits when we turn 70 in about 14 years under current law.

-gauss
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Old 06-09-2021, 04:44 AM   #3
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The young wife and I face a more drastic version of this problem, as she is ineligible for her own SS and is subject to the GPO, which means she doesn't get a spousal benefit now and won't get a survivor benefit if I predecease her (which seems likely). We have dealt with the issue by having a fully paid up whole life insurance policy on me. If she chooses the annuity payout option, the death benefit will be more than sufficient to make up for my lost SS income. If she goes first, then I can cash in the policy (we have no heirs).
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Old 06-09-2021, 07:09 AM   #4
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You could do a term life insurance policy, with the amount of life insurance coverage designed to provide amount sufficient for the surviving spouse to buy a SPIA when you first start SS.

Since SPIAs prices decline as one gets older, the fixed amount of life insurance will be able to buy a higher benefit and the higher benefit will somewhat replicate the impact of inflation.
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Old 06-09-2021, 08:07 AM   #5
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Quote:
Originally Posted by gauss View Post
I agree that this is a huge issue.

In addition the costs may likely increase for the surviving spouse in that many of the tasks performed by the deceased spouse may need to be paid services for the survivor.

We partially hedged this by purchasing maximum employer/group life insurance on each of us.

IMHO, there should be an actuarial neutral option to reduce both spouses amount at claiming that will allow payments to continue until both have passed (like the 100% survivorship option available in some defined benefit pensions).

Years ago, I never included the SS benefits when I performed my "retirement readiness" calculations. When the SHTF and ER became a possible scenario, I began studying the value of SS and realized it made a huge difference in our retirement readiness.

I think DW and I together are scheduled to receive over $80,000 per year currently (in real terms) combined SS benefits when we turn 70 in about 14 years under current law.

-gauss

I disagree with your idea of having a surviviorship option. A dear friends husband died at 65 and didn't get one SS check. There are multiple actions where things don't seem "fair" But as a couple you know the rules when you claim so I don't see any good reason to make SS more complicated then it is now.
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Old 06-09-2021, 09:20 AM   #6
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@ivinsfan

If it is cost-neutral to the SS program (recall my actuarial neutral assumption), then why would you deny a couple the choice to spread the benefits over both lives?

Are you interpreting my proposal as a request for some type of subsidy from single earners to dual earners? That was not the intent of my suggestion.

We will indeed know the rules when we claim. We are just suggesting that there should be more rules/choices given the changes in the composition of the labor pool in the past 50 years.

I didn't realize this would be a controversial proposal given the cost neutral assumptions.

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Old 06-09-2021, 09:25 AM   #7
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@ivinsfan

If it is cost-neutral to the SS program (recall my actuarial neutral assumption), then why would you deny a couple the choice to spread the benefits over both lives?

Are you interpreting my proposal as a request for some type of subsidy from single earners to dual earners? That was not the intent of my suggestion.

We will indeed know the rules when we claim. We are just suggesting that there should be more rules/choices given the changes in the composition of the labor pool in the past 50 years.

I didn't realize this would be a controversial proposal given the cost neutral assumptions.

-gauss

I'm pointing there are other way more punitive rules on the SS books right now. I think this is kind of a tempest in a teapot.
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Old 06-09-2021, 09:37 AM   #8
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I donít see this as a big deal. If it is a concern, buy cheap term insurance now. At spouse's death, consider whether an immediate annuity is desirable, complete with all its pros and cons, one important consideration being the remaining lifetime of the surviving spouse. Otherwise invest the lump sum and draw on it as necessary.

Using anything other than term insurance simply enriches the salesperson and the insurance company, and probably locks in a strategy unnecessarily.
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Old 06-09-2021, 12:26 PM   #9
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I'm pointing there are other way more punitive rules on the SS books right now. I think this is kind of a tempest in a teapot.


Ahh - Ok, Thanks for the clarification.
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Old 06-09-2021, 01:00 PM   #10
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Everyone’s situation is different including how much SS is depended on. In our situation expenses go down if one spouse is gone so losing one SS check is going to be offset by the drop in expenses.
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Old 06-09-2021, 05:26 PM   #11
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Quote:
Originally Posted by gauss View Post
I agree that this is a huge issue.

In addition the costs may likely increase for the surviving spouse in that many of the tasks performed by the deceased spouse may need to be paid services for the survivor.

We partially hedged this by purchasing maximum employer/group life insurance on each of us.
We were concerned about my wife having to take too much money too soon from retirement savings if I died young, and I bought a 10 year term life policy (to age 68) three years ago. It is less than $100 a month. My employer term policy also has several years to run.

Combined with a delay in my taking Social Security, this should provide significant protection.
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Old 06-09-2021, 05:29 PM   #12
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We were concerned about my wife having to take too much money too soon from retirement savings if I died young, and I bought a 10 year term life policy (to age 68) three years ago. It is less than $100 a month. My employer term policy also has several years to run.

Combined with a delay in my taking Social Security, this should provide significant protection.

Yes I certainly don't think its the governments jobs to step in offer more options to couples in this situation. Just be a grownup and figure it out yourself.
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Old 06-09-2021, 06:22 PM   #13
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Everyone’s situation is different including how much SS is depended on. In our situation expenses go down if one spouse is gone so losing one SS check is going to be offset by the drop in expenses.
As you said, everyone's situation is different. Sadly, the couples least prepared for it seem to be the ones hardest hit and usually it's the widow since women live longer. If you were living mostly on SS and one spouse dies, the rent/mortgage and the utilities don't decrease and those are probably the bulk of your expenses. Property taxes don't decrease unless you now qualify for some abatements for low-income people. Single taxpayers have a bigger tax burden than Married Filing Jointly with the same income. I know 3 women in my church who had to sell their houses after being widowed because they couldn't afford them anymore.

Yes, buying life insurance with a payout that allows the purchase of an annuity if the surviving spouse wishes is a good plan but I don't think many people outside of this Board (and maybe Bogleheads) think that far ahead.

As for gauss' proposal, you know that the couples who can least afford it will choose the option with higher payments now and decreasing payments when the first spouse dies.
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Old 06-09-2021, 07:12 PM   #14
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That drop in expenses isn't a thing. If you have income, the survivor's tax liability often doubles.
Our strategy there is to convert all the 401k/403b as quickly as it is economically feasible, so the surviving spouse has the majority in Roth tax free funds.
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Old 06-10-2021, 07:20 AM   #15
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OK, Gauss made me look. I'm a retired property-casualty actuary and haven't messed with mortality tables in a few years but I found a 2012 Annuitant Mortality table and did a rough calculation of how much a wife's SS payment would be reduced if she elected a benefit that didn't change total household income if her husband died first. Depends on age, age difference, COLA, etc. but I assumed husband filed for an $1800 monthly benefit at age 65, wife 2 years younger filed for hers at age 65. COLA 2%. Rate of return to calculate present value 6%.

Her initial benefits would have to be reduced from to $500/month if DH is still living, $2,300/month if he's deceased, adjusted each year for COLA, to get the same present value as her $900/month spousal benefit (switching to $1,800/month if he's deceased) under the current law.

I'm a bit rusty at this (which I realized after several iterations and corrections) and I haven't had my full ration of morning coffee, but if that's ballpark, I can't see too many spouses going for the "actuarially neutral" option that provides no change in total household SS if one spouse dies.
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Old 06-10-2021, 08:12 AM   #16
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yes, those are hard pills to swallow for sure! I can opt for a COLA on my pension too, at a serious reduction in the first years.
You know, those years you are likely to enjoy. To heck with that!!
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Old 06-10-2021, 08:16 AM   #17
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a53 Life insurance could cover that gap and probably cheaper. Since I don't have a totally closed mind, I will admit.


1. you likely will have to buy insurance well in advance of claiming SS in case you can't get underwritten at 65 plus.


2. term gets more expensive as you age.


3. some people can't get underwritten from a young age, depending on medical history.



it's not perfect but I still don't think that SS needs to step in.
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Old 06-10-2021, 08:46 AM   #18
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....it's not perfect but I still don't think that SS needs to step in.
Agreed... SS has much bigger fish to fry than trying to add a joint life option for married couples.
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