It is uncomfortable for anyone to imagine their home and their life without them in it or their spouse suddenly alone after decades of marriage. But retirement planning isn’t all tee times and Caribbean cruises. Couples have to put just as much thinking into life’s inevitable challenges as they do into the good things they enjoy together.
As difficult as it may be, take a moment and think about your wife or your husband without you, as a widow or widower. Don’t you want to do everything you can to make sure the person you love is provided for?
You can help your spouse by having those difficult conversations and making decisions now.
I have learned from years of working with couples just how emotional this part of a financial plan can be. Following this three-step process can help you and your spouse work through these matters together.
1. Have the “Heart-to-Heart Conversation.”
- Show each other the basics of how you handle your shared and divided responsibilities. Do you pay bills by check or online? Where does your spouse file your family’s important documents?
- Talk about the future and understand how each of you plan to live should the other pass first. Would your spouse stay in the family house or move? What financial resources will be available to each of you?
- Communicate your plans to your heirs so there are no surprises in the middle of what will already be a difficult time.
I recommend that you revisit my previous blog post on how to navigate this challenging conversation for more information.
2. Determine where the surviving spouse’s income will be coming from.
It can be tempting to skip this step. After all, the survivor can figure that out down the road, right?
If you wait, there is a risk that you or your spouse may not have the income needed. It’s far better to know what’s coming and to be prepared.
It’s true that a one-person household has fewer expenses than a two-person household. But except in circumstances where the deceased spouse had been living in an expensive care facility, it’s rare for the surviving spouse’s income and expense reductions to align favorably. In most cases, the surviving spouse is going to lose income – in some cases, a lot of income.
For example, your spouse may:
- Receive less in Social Security benefits. It is likely that the survivor will no longer receive the lower of your two Social Security benefits payments (assuming you are both taking benefits).
- Receive less in pension benefits. It is possible that some or all pension benefits and/or annuity payments end with your death.
- Pay more in taxes. In some cases, simply going from a two-person household to a one-person household will increase taxes owed.
The first thing to do is clarify which income streams will be lost and which will remain if one of you passes away. You may need to contact current and past employers’ Human Resources departments to clarify pension provisions and annuity providers to get clarification of contract specifics. Also, it’s a good idea to speak with the Social Security administration – or, better yet, ask your fiduciary advisor how your Social Security benefits will be affected by death.
3. Make adjustments to your balance sheet.
Take a look at my previous blog post, “Do I have Enough Money to Retire?” where I discussed the process of creating a balance sheet for your retirement assets, income, and liabilities. In it, I mentioned the importance of being flexible and making adjustments as necessary.
The death of a spouse is one of those instances that calls for adjustments. Once the surviving spouse has figured out what income streams will still be available, he or she needs to plug those new numbers into the balance sheet, preferably with the help of a fiduciary advisor. Lifestyle expectations may need to be scaled back. Investment and insurance strategies may need to be tweaked. Annual withdrawal rates from retirement assets might need to be tightened.
Please, don’t wait.
The death of a spouse is difficult enough in and of itself. That’s why it’s important that couples have that heart-to-heart talk and put plans in place so that grief is not compounded by shock, worry, and uncertainty. Just as you had a plan for your retirement as a couple, a contingency plan needs to be in place in the event of losing a spouse. Making these arrangements before a major life change will provide peace of mind and help ensure the quality retirement your original plan laid out.
Jack Davis is the founder and CEO of Navigation Retirement Group, an independent wealth management firm serving high achieving retirees and pre-retirees with investable assets between one and ten million dollars. For nearly three decades, he has been using his asset management and financial planning skills to develop and implement planning strategies that help pursue his clients’ unique goals. Passionate about education, he holds a Masters in Personal Finance and the CERTIFIED FINANCIAL PLANNER™ credential. He is also the author of Cash Out! Retire on Your Terms, Live Well and Die Happy, a book that gives pre-retirees and retirees planning tools and insights that can help them flourish throughout retirement. Based in Oro Valley, he and his team serve clients throughout the greater Tucson area and around the country. Learn more by connecting with Jack on LinkedIn.
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