Don’t let death of a spouse derail retirement

The odds are extremely good that my wife will outlive me.  Whatever the reason—genetics, a healthier diet, the fact that she uses our treadmill as something other than a clothes rack—there will likely come a day when she bids me adieu. 

Most people know that women have a longer life expectancy than men, living about 81 years compared to 76 for the average male.  But what they may not have considered is what this statistic means in reality: namely that the overwhelming majority of people in retirement are women. 

In the U.S., women make up nearly 60 percent of the population over age 65 and nearly 70 percent of the population of those over age 85*.   How should that reality affect the retirement planning of the fairer sex? 

Investments

At a minimum, a longer retirement means the need for more income.  All else being equal, funding a 20-year retirement will be more expensive than funding a 10-year retirement.  That means more money will need to be set aside leading up to retirement and withdrawal rates will need to be sustainable (around 4 percent) during retirement in order to keep from running out of money. 

Also, asset allocation will be more important than ever.  The portfolio will need to be invested aggressively enough to overcome the ravaging effects of inflation that are sure to happen over a longer period, but not so aggressively that investment losses wipe out principal.  Maintaining the proper balance is a key ingredient to making the money last. 

Pension plans

A pension plan for a married couple can be an important source of retirement income, but what happens to that income when one of the spouses dies?  If the husband dies and it was his pension, does that income go away?  It depends.  If the pension benefit was based on his life only, then payments will likely end when he dies.  To avoid the negative financial impact that this would likely cause, couples should arrange with the pension provider to base the benefits on both of their lives.  “Joint Life” benefits will likely be smaller than those based on a single life, but they will also minimize the financial impact on the surviving spouse. 

Social Security

Women are more likely than men to leave the workforce at some point in their careers in order to raise children or care for aging parents.  Some choose not to work outside the home at all.  This, along with the fact that women still tend to earn less than their male counterparts, can impact their eligibility for Social Security benefits.  Because of that, the Social Security Administration has special rules that apply to people who are widowed, divorced or still married, but with little in the way of earned benefits. 

For starters, spousal benefits entitle everyone to either their own benefit or half of their spouse’s benefit, whichever is greater.  In addition, those widowed or divorced are able to collect benefits on their former spouse’s Social Security record if:

  • The former spouse is collecting benefits or is deceased
  • You were married for at least 10 years
  • You are 62 or older (60 or older if your spouse is deceased)

Getting remarried could affect your eligibility for benefits under certain conditions, so be sure to check with the Social Security Administration before heading back to the altar.  For more information visit www.ssa.gov and download the brochure “What Every Woman Should Know.”

Life Insurance

The primary purpose of life insurance is to replace a person’s income in the event of his or her death (Note: It can also be an effective estate planning tool, but that is a discussion for another article).  Because of that, many people keep adequate insurance coverage during their working years to protect their spouse and children, but then get rid of it when they retire.  This could be a big mistake if a significant portion of a couple’s retirement income is attributable to just one of the spouses, say in the form of pension or Social Security benefits. 

How do you know if you need life insurance during retirement?  Ask yourself this question: “Would my death create a significant financial hardship for my spouse?”  If not, then you probably don’t need life insurance.  However, if the death of either you or your spouse would result in significant loss of income for the other, then life insurance can be a good way to protect against that loss.

Long-term care insurance

Long-term care insurance can help cover a variety of costs including home health care, respite care, adult day care, care in an assisted living facility, or nursing home care.  This type of insurance can make sense for women for a variety of reasons, but two stand out.  First, if a woman is predeceased by her husband, there is a good chance that there will be some large medical bills related to his final illness and care.  These bills can take a big chunk out a couple’s nest egg and impair its ability to provide income to the surviving spouse.  Long-term care insurance can help preserve those assets by covering expenses not usually covered by health insurance, Medicare or Medicaid. 

Second, if a woman lives 5, 10 or even 20 years longer than her husband, there is a good chance that she will need some type of long-term care services during her life as well.  And because her husband died first, she will have fewer options if she becomes sick or disabled and needs someone to help.  A long-term care policy can provide peace of mind, minimize burden on friends or family, and help her get into her choice of facilities or be cared for at home as long as possible.

Estate Planning

Married couples typically create their estate plan (e.g. wills, powers of attorney, etc.) together, but it is the wife who tends to see that plan in action.  Because women live longer, it is the wife who will likely be the one to use the powers of attorney for finance and health care if her husband becomes disabled or incapacitated due to illness.  She will also need to handle his estate when he dies.  When that occurs she will need to update her own planning and make sure that it passes her property to the correct people and names the people she wants to handle her affairs in the event that she is no longer able.  Because of that, women should pay particular attention to their family’s estate planning and make sure that it is up to date and accurately reflects their wishes.

Living a long, healthy life definitely has its benefits.  It means more time with friends and family.  More time doing the things you love.  More time enjoying life and experiencing all that it has to offer.  Unfortunately, it can also mean outliving those you love.  By planning ahead, you can create security and peace of mind for yourself and your family and keep your retirement on track.

 

* Federal Interagency Forum on Aging-Related Statistics: http://www.agingstats.gov/Main_Site/Data/2008_Documents/Population.aspx
 Photo by Mark Brooks.  Used under Creative Commons License.  I originally published this article at www.fpanet.org.

 

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