How do you plan for possibility of early death of a spouse in FIRE

[LateToFIRE]

Morbid but important topic - how have couples planned for the possibility one of you passes away too early. I'm sure there is a wealth of experience here.

As I anticipate FIRE, I'm realizing this risk is not something I've given enough thought to. In my working years I've generally compensated by carrying large amounts of life and disability insurance on myself as the primary breadwinner. That gave me a measure of comfort DW would be financially ok without me. But was planning to cancel all of it in retirement (now rethinking).

There are a number of issues I need to think thru:

1) Problem of widow(er) forced to take RMD's while being pushed into a significantly higher tax bracket as a result of becoming a single-tax-filer.

2) Loss of income due to SS/pension hit. In our case, could be quite significant. If we both live into our 90's, there's about $3M of combined SS/pension benefits we'd receive. If I get hit by the proverbial bus in my "prime" FIRE years, that's about a $1.3M loss of benefits (even assuming DW's SS benefit is stepped up to mine).

3) Estate planning, titling/beneficiary designations on bank/investment accounts, real estate, etc. - this seems like the easy stuff if legally married, more complex if not. We have more attorneys than you can shake a stick at, so well covered here.

4) Figuring out who to assign POA's, healthcare proxies, etc, basically who will oversee finances and healthcare as spouse ages (especially relevant if you don't have children). Who do you trust? I've seen some really bad behavior on this issue.

Anyhow, these are a few things that came to mind. How are you all thinking about this issue? What have you observed and experienced? What am I leaving out?

 

[LateToFIRE]

^^^
Heading should probably read "How do you plan for the possibility of..."

 

[Sunset]

Moving investments from foreign Countries to the home Country, as spouse will be pretty lost in dealing with the rules and not have contacts.

For the IRA RMD income tax jump : Do Roth conversions, and assign % of IRA to other beneficiaries, leaving some IRA, cash , stocks (step up basis), and Roth to spouse.

Realize, can't control everything in the end.

 

[braumeister]

Mike Piper, a well respected authority here, has a book, After the Death of Your Spouse, which offers a wealth of insights and advice on this topic. Recommended reading.

 

[GravitySucks]

I lost my wife right before ER. Probably wouldn’t have left working for at least another seven years otherwise. Never thought she’d go first.

1 is really not a problem, more a pain. If you have to withdraw enough to jump tax brackets and IRMAA you’re not eating cat food. That said life would have been easier if I had contributed to a Roth.

2 I took survivors SS at 60. Letting mine how till 70. I would have kept some term life till SS if she was still alive. In general expenses drop around a third from my experience and talking to other widowers. If DW survived me it would probably be even greater savings as she would have down sized to a condo.

3 DDs cover this for me. Guess I’d choose a charity otherwise.

4 Again, covered with DDs. Not sure what I’d do here without them. I also check in with them when I make any major portfolio direction changes. I’ll probably have one run everything before I get addle minded.

Just my experience. As others warn YMMV

 

[pacergal]

1) You could do Roth conversions. Roth was not available while we were working and we never did one.
2) We both took our pensions as 100% joint survivor and SS at 62, so our income will only change by losing the one SS check each month. We have based our budget on our pensions, so hopefully, will not be a large financial impact.
3/4) no change, our children are beneficiaries for everything, we have will/trust, Advance directives, POA and Healthcare POA, etc done.

Same plan for death of spouse, either early or later. But we retired at 60, so not real early by some standards.

 

[rodi]

You have to plan for it.

1) Roth conversions prior to RMD can help with this. But as someone mentioned - while it sucks to pay more taxes, this is not a 'can only afford catfood' situation.

2) SS strategies are all about this. I'm younger than my husband, but have bigger SS earnings. He has longevity in his family. It's one of reasons we are planning for me to wait till age 70 to claim... so if I predecease, he'll get the larger benefit.

My dad had survivorship for my mom's county pension and my stepmom had SS/pension from her previous husband. They didn't marry because it would have been the loss of about $5k/month in income. Instead they became 'registered domestic partners.

The other issue is similar to question 1)... if the surviving spouse has full survivorship on a pension, and is now just one person, that could trigger a higher tax bracket.

We have each other as POA for medical and financial. But when one of us passes, the survivor will need to find another person for this role. For accounts we have a less tax optimal approach right now - retirement accounts go to each other primary, secondary is our trust. But as our boys get older and develop more frontal lobe (they are 21 and 23 and not 100% emotionally ready for a windfall) we'll change the secondary beneficiary to them, rather than the trust. We're getting closer to that point, but I'd like to have them be at least 25 before we make that change.



It always surprises me how many of my friends are surprised that the surviving parent doesn't continue to collect both SS's when the other parent passes. This has been a big shock for several of my friends. I then point out they need to plan their *own* lives with this newfound knowledge. That income will be impacted when the first spouse dies.

 

[iloveyoga]

I have tried to plan for both scenarios. We keep our wills up to date and our pensions are both 100% survivorship. Everything goes in and out of our checking account mostly on auto pilot, so that would be ok for a bit. My IRA at Vanguard is set up as simply as possible so that someone could step in and easily help (our son). I have always done 100% of the finances and that is probably not going to change at this point and I realize that is an issue. I've helped with three parent's estates so I did learn from those experiences.

 

[Out of Steam]

2) Loss of income due to SS/pension hit. In our case, could be quite significant. If we both live into our 90's, there's about $3M of combined SS/pension benefits we'd receive. If I get hit by the proverbial bus in my "prime" FIRE years, that's about a $1.3M loss of benefits (even assuming DW's SS benefit is stepped up to mine).

Since most of my individual income comes from my own pension, I would be OK financially if my wife died. If I die before her, which seemed very unlikely at our retirements (possibility is more even now), she would take a substantial hit compared to our combined income. She would also have relocation expenses, as she does not want to live in a single family house without me and would probably move near our adult daughter.

We've done several things to mitigate that risk:

1) Delaying my collecting Social Security, though am considering taking it in 2025 at 65/66.
2) Keeping a term life insurance policy on me through age 67. This is a small policy, $125K.
3) Since her funds may be needed further in the future than mine, keeping a higher stock allocation in her retirement accounts.

 

[LateToFIRE]

Mike Piper, a well respected authority here, has a book, After the Death of Your Spouse, which offers a wealth of insights and advice on this topic. Recommended reading.

Looks like a good book to read in advance of needing it. Can't tell if it addresses steps to take in advance to mitigate impact and prepare for life after.

Contents include:

Immediate Next Steps:
1. Estate Administration Process
2. Organizing paperwork
3. Notifying Necessary Parties
4. Initial Responsibilities as Personal Representative
5. Updating Your Own Estate Plan

Intermediate Next Steps:
6. Social Security Planning
7. Further Responsibilities as Personal Representative
8. Handling Inherited Retirement Accounts
9. Additional Options as a Beneficiary and Surviving Spouse
10. Tax Returns
11. Reassessing Your Finances
12. Reassessing Your Portfolio
13. Finding Professional Assistance

 

[LateToFIRE]

I lost my wife right before ER. Probably wouldn’t have left working for at least another seven years otherwise. Never thought she’d go first.

1 is really not a problem, more a pain. If you have to withdraw enough to jump tax brackets and IRMAA you’re not eating cat food. That said life would have been easier if I had contributed to a Roth.

2 I took survivors SS at 60. Letting mine how till 70. I would have kept some term life till SS if she was still alive. In general expenses drop around a third from my experience and talking to other widowers. If DW survived me it would probably be even greater savings as she would have down sized to a condo.

3 DDs cover this for me. Guess I’d choose a charity otherwise.

4 Again, covered with DDs. Not sure what I’d do here without them. I also check in with them when I make any major portfolio direction changes. I’ll probably have one run everything before I get addle minded.

Just my experience. As others warn YMMV

I'm so sorry for your loss. Thanks for the perspectives, especially re drop in expenses. I doubt DW would stay in our home - it would be too large, high maintenance, and isolated. Funny how the home's positives would turn into negatives in an alternate situation.

 

[Gumby]

As we were thinking about and preparing for early retirement, we gave a lot of thought to this. Two people who have been pulling in tandem their whole lives owe it to each to ensure that whoever survives is not forced to suffer the loss of a spouse AND the loss of sufficient resources to continue their lifestyle.

The details will depend on the individual situation, but in general, I would say that the principal things to decide are

1. What do do with respect to social security;
2. What to do with pension survivor benefits;
3. What to do about life insurance; and
4. How to shape one's portfolio.


Social Security

I believe the common wisdom is that the lower earning spouse should start taking their own benefit at 62 and the higher earning spouse take at 70. The lower earning spouse switches to spousal benefit at his or her full retirement age. That maximizes the later in life income for the survivor. Notably, this requires the couple to have sufficient other resources to permit that delay in receiving SS benefits from the higher earning spouse. Many people need both spouses to take social security as soon as they can in order to make ends meet. And in any case, total social security income upon the death of either spouse will drop from 1.5X the higher earner's benefit to to just 1.0x, a drop of 33% of income. Theoretically, one person should be able to live for about 71% of the cost for two, but as a practical matter, that may be untenable. This means there either needs to be money in the portfolio or some other source of income.

Pensions

Some people, especially if they worked for the government, may have pensions to supplement social security. Many of these pensions have a survivor benefit provision, where upon the death of the primary pensioner, the pension payments continue for the life of the the survivor. Often, the remainder can be a percentage, such as 100% , 75%, 50% or 25%. In return for that survivor provision, the initial pension amount is reduced. To my mind, the pension survivor benefit is akin to life insurance. Again, one should consider carefully a drop in income upon the death of the primary pensioner. I'm sure we have all heard of widows left in penury because their deceased husband left no survivor benefit. This also will be dependent on whether the couple has sufficient other resources to take a smaller pension up front.

Life insurance

A potential solution for the loss of pension and/or social security income upon the death of a spouse is life insurance. The conventional wisdom on life insurance has always been "buy term and invest the difference" which is fine when we are in our working years with dependents. As we age, however, any term life insurance will come with an ever increasing cost and may become unavailable if one is unable to pass an underwriting physical. Which seems to make the paid up whole life policy a better choice in the retirement years, although it is more expensive up front and requires action well in advance of retirement.

Portfolio

Aside from aligning the portfolio with the above considerations, taxes are the main driver of this issue. When one of a couple dies, the survivor will be filing taxes single. All the marginal brackets are halved and, for the same income, taxes will be at a much higher rate. This consideration is, I believe, the primary driver of the Roth conversion strategy - to minimize the tax burden on the survivor -- but it comes at the price of paying taxes now.

*******

I realize this is somewhat generic, so let me tell you what the young wife and I have done specifically. First, a word about our income streams. We both have pensions and I get social security. Because she was a teacher and never paid into social security, she is not eligible for her own benefit and, due to the GPO, will never get a spousal or survivor benefit based on my record. These three income sources currently cover all of our spending, including foreign travel. To give you an idea of the relative size, if our annual spending is 100%, her pension is 56%, my social security is 27% and my pension is 17%. Our portfolio has so far remained untouched since we retired in 2019.

So, absent any survivor provision in our pensions, if she dies first, I would have to live on 44% of the current cashflow because her pension would be terminated. If I die first, she would have to live on 56% percent of current, because both my pension and social security will terminate. In light of that, we did two things. First, we both took the 100% survivor benefit for our pensions**, so if she dies first, I continue with 100% of current income. If I die first, she will continue my pension and her own, giving her only 73% of current income. So, to make up the difference, I have a fully paid up whole life insurance policy. If she annuitizes the death benefit, it will produce lifetime non taxable income equal to my social security benefit.

Of course, these provisions came with a cost. The 100% survivor provisions reduced each of our pension amounts by 10% up front. The whole life policy was not cheap and required planning well in advance. I started it in 2002 and paid on it for 15 years, finishing two years before we retired. But now it is in place and will provide what we planned for.

With respect to the Roth conversion issue, currently we pay 22% on Roth conversions right out of the box. I have run spreadsheets six ways to Sunday and they all show that converting within the 22% bracket, we simply cannot convert all our tax deferred money before RMDs arrive. The survivor will be in the 24% bracket, but will not move into the 32% bracket until age 90. Accordingly, we are only making modest Roth conversions now to provide a pool of money we can tap for unexpected costs without further tax consequences, the earnings on which we don't have to include in current income.

Some may think that we have over-emphasized protecting the survivor at the expense of having more money now. But our income covers our spending, we have everything we need and are doing everything we want to do right now. And if we want to have or do more, we also have a portfolio that is 25x spending.


** a secondary reason for me to have a survivor benefit is that our health insurance comes through my retiree health plan, which only continues for the widow if I have at least a 50% survivor provision.
__________________

 

[LateToFIRE]

...It always surprises me how many of my friends are surprised that the surviving parent doesn't continue to collect both SS's when the other parent passes. This has been a big shock for several of my friends. I then point out they need to plan their *own* lives with this newfound knowledge. That income will be impacted when the first spouse dies.

Kinda came as a surprise to me too when I started researching it - I just had not thought it thru. And also, SS was for the most part, not a big part of our ret planning. Last couple years of analysis though have really brought into focus just how critical SS is, even for HNW folks. As noted above, potential to collect $3M in risk-free, COLA'd SS benefits is nothing to sneeze at. I now see it as the base pillar of our plan [vs previous approach as simply icing on the cake]. And I surely hope it is there for next generations [if they truly understood what it could mean to them in the future they would not be so casually resigned to letting it disappear someday].

 

[skyking1]

I'm 4 years older and have 2 non-cola pensions.
DW has a 403b and a 401K, plus another 401K from an employer long ago.
The plan is to take the pension at 100% survivor benefits, which gives it a haircut of 16
%.
We will Roth convert to the top of the bracket, starting with that orphan 401K. The goal is to work toward KISS for her.
If I go first, the pensions just carry on. If she goes, the larger pension reverts back up that 16%. That is a bonus feature that I have not seen elsewhere.
She will take her SS @~62-ish per opensocialsecurity.org
I will wait until 70.

There are a whole range of middle scenarios in there but we had to start somewhere with a plan.

 

[CRLLS]

1) Re RMD's: We did Roth conversions for a few years until some unexpected dividends came into our life. Now it is just let it ride until the time comes.

2) Survivor loss of income: When we could and it was financially beneficial, we converted our pensions and 401Ks to IRAs. Now the retirement nest egg is equal access regardless of who goes first. I was the higher earner and waited until age 70 for claiming SS. The higher benefit goes to the survivor, again equal.

3) Estate planning: Our investment and IRA accounts have each other as 100% beneficiaries, kids as secondary 50/50. Bank accounts are joint. Home is joint. Only a few vehicles are titled in one name or the other. For the Will, again the survivor gets it all. Should the survivor not get around to changing their beneficiary before they go, secondary beneficiaries are set up in the Will leaving it to our sons. Should they predecease us, then the grandkids via a trust (minors now) will get a percentage and another percentage will go to the DIL's. A bit complicated but easily set up.

4) Again, our POA, healthcare docs are primarily set up giving full power to each other.

There will have to be some soul searching and decisions to make by the survivor should one of us go first. Documents will have to be changed, for certain. Until then, we will just keep going on as is. My obligation is primarily to DW and her to me. It is our LTC plan. Our children are grown and can easily support their lifestyle by themselves.

 

[jazz4cash]

4 Again, covered with DDs.

DDs?

 

[LateToFIRE]

DDs?

Probably Dear Daughters

 

[Romer]

I have a spread sheet i Use to plan retirement with investment balance/withdrawal, tax rate calculations etc

I retired based on Firecalc and the spread sheet

Before I retired, I took my spreadsheet and copied the page and set it to SS at 67 (My survivor) and single tax rates

I saw that the single Tax rates really added to the expenses and drained the accounts faster. She would still have been ok selling the house and moving to a smaller place. House is way to big with an acre lot to maintain so would expect that anyways.

Based on that, I began a campaign of Roth Conversions. By the time we are 68 all our IRAs will be converted to ROTHs.

Rerunning the numbers are greatly improved and she doesn't need to downsize the house even if she lives to 110. Single tax rates can take a huge bite

The tax bill really doesn't go up in this scenario. Colorado doesn't tax SS in any case

Not only does it help financially a single person, it also makes it much simpler for my wife managing the money and doing taxes.

Doing Conversions at Married Rates and now before the tax rates go up in 2026 make this a win win even for both of us around until 110 (or more). The payoff Married Couple to Married couple gets less once tax rates increase, but thinking still good for married to single rates later

It does depend on what tax bracket you are in and when you start retirement along with your current age. Currently, have been taking this all the way up to the 24% bracket, but next year will stay below the 22% bracket due to IRMAA rates impacting Medicare two years later.

When I figured this out, my last two years of employed 401K contributions were all ROTH and I started the conversions when I retired at 60. So far have converted 55% of our IRA's to Roth. Next year will throttle back and expenses and smaller conversions will complete it.

Everyone's situation is different and this approach won't make sense for everyone.

Many on here don't believe Roth conversions are a good idea. Making things simple for my wife if I pass first and protecting her financially was my biggest driver in going this route.

 

[skyking1]

^ That is my aim too.^
We are lean-ish fire and can stay at the 12/15% bracket and move most of it to Roth before I take my SS.
It is plain to see the effect on the survivor. Half that income pops up into the 22% bracket,
so this is easy tax arbitrage.
If we left it as-is, most of the RMDs would be at the 24% bracket for a surviving spouse.

 

[cyber888]

My wife is more than 10 years older than me, so I have planned for this in my calculations.
I already took an annuity because of this, since I have to take SS at 62 and she'll be getting 50% of my SS at full retirement age.

 

[RetiredHappy]

For us it is not an issue financially. Neither of us has pension and when we lose the smaller SS, it is offset by reduced expenses. I have an annuity which continues to pay my spouse if I die first. Since we are already in the 24% tax bracket, losing one spouse is also likely to leave the survivor at 24% tax bracket, which makes it a wash.

Since we spend alot on travel and golf, that will be reduced significantly, which is a significant part of our budget. The survivor will continue to golf at the club, but unlikely to spend on expensive trips and golf when travelling.

 

[brett]

This was an issue for me. I handled the finances, the investments, the taxes, the bank accounts.

There was no financial issue and our wills, etc were both up to date and are kept up to date. My spouse knows our tax accountant and is familiar with the law firm that handled our respective wills. There is the usual file with a complete list of accounts-banking, investments, etc. These are the easy parts.

My concern was going forward. I did two things. The first was to consolidate our investments into one overriding umbrella. Same for our bank accounts. made certain that there was always ready funds in my spouses name that she could access.

My spouse never wanted to become involved in the investments. Together, we selected a new financial adviser that she was comfortable with. Investments in her name, my name and joint. I made a point of having her attend every meeting with the advisor if only so she could establish a relationship and ask questions pertaining to those investments.

All of our living expenses go through our joint current account and/or our credit cards. Those cards are paid thought the current account. My spouse has access to them. Should anything happen to me all of our relevant day to day expenses, autopays, etc would become evident.

We are not in the least bit concerned with tax brackets. More concerned about day to day, the 'what do I do now' part. The rest is fairly straightforward with professional advice.

 

[marko]

We have our wills and trusts all lined up and up to date. DW has taken more of an interest in the financials of late and I warn her of things to avoid and we now regularly discuss "how it all works ". She's very well acquainted with our attorneys and accountants who have a much better handle on the financials.

She would likely move to a condo rather than stay in our large house...to many little day to day things to deal with.

Her main concern would be what to do with my disabled brother as I manage most of his life right now and there is no other family on my side....none. We're already discussing options for him.

I suspect that I'd be fine if she went first. Lonely, but fine.

 

[Piper20]

Brett most Credit Cards have a primary and authorized user. When they find out you’ve passed and you’re primary auto pay will fail and the credit card inactivated. I’ve placed all our auto pay in DW credit card in her name. It’s easier for me to deal with if DW goes first.

 

[LateToFIRE]

Appreciate all the thoughts on this topic. No surprise many in this community have a plan for this scenario. Applying some of this to my own situation, I've arrived at the following:

1) Taxes: We've just retained a well-recommended tax accountant/advisor and will begin discussing some of this with him. Once I FIRE and the dust settles on various near-term liquidity events that will create significant taxable income and cap gains, plan to start on Roth conversions, (a) to help mitigate the single-filer issue, and (b) to give us more financial flexibility (by virtue of having a bigger pot of "tax-free/tax-prepaid" funds).

2A) Loss of Income: If I go first, DW would experience a loss of income from my small pension and loss of a SS check. While that is literally a million dollar problem (cumulatively) it's not a deal-breaker. Others have pointed out that expenses would likely decline and I'm quite certain DW would not stay in our 4BR house on a big isolated property that requires an army to maintain - she'd probably sell and move into a condo - that alone would cut our budget in half. This would compensate for the fact that she'd probably need more hired help to replace my handyman skills.

2B) If she goes first, I also would sell the house and move to a condo or rental, and/or possibly completely relocate, so similar to the above but with more unknowns on where I'd be living. My loss of income would be a bit smaller. We both have whole life policies that are paid up, mine is ~$300K, hers is smaller. Otherwise, we've been gradually shedding our term life and disability policies and will complete that process shortly.

3) On the estate stuff, we have really good lawyers, advisors and such. But, on financial simplification, need to do more work on that. I handle the investments, she handles the day-to-day bill paying, neither of us knows much about what the other is doing or how its done. Need to fix that. Thinking consolidate all the investment portfolio stuff with Fido where they will put us in their Private Client group so there would be an advisor for DW if I'm not around to manage. Most of our accounts, assets are titled JTROS, so pretty simple there. May place home in a trust for liability sheltering - it is a valuable asset at ~$1.5M, and if/when sold would set us up to have some amount of sheltered funds (need to consider the tax implications though).

4) Representatives: Both wife and I are each other's beneficiaries, reps, etc. The question of who our back-ups would be is still outstanding. Need some folks who are younger than us. Next generation of nieces and nephews are coming along nicely, starting to become financially responsible citizens with some experience under their belts, so optimistic the answers will present themselves next couple years.