When spouses develop their financial strategy for retirement, they consider what is best for them as a couple. They typically ignore one very important reality; and that is that one spouse will outlive the other, and could conceivably go on for a number of years. That means to really be ready for retirement, every couple also needs to design a plan to ensure the surviving spouse’s financial well-being for the rest of their retirement life.
Consider the following tips:
- Take financial inventory – Start by making a list of the income that will exist before and after the death of each spouse. Be sure to include retirement assets that are listed in only one spouse’s name, and any Life insurance policies in which one spouse is the named beneficiary.
If you don’t have Life insurance, consider purchasing it for extra protection. If you intend to buy a policy, do so before you retire, because as you age, Life insurance become more expensive, and you won’t get as much coverage for your money as you would if you were younger. - Know if your pension plan requires that an option for a survivor’s benefit be made available – Traditional defined benefit pension plans are covered by the Employee Retirement Income Security Act, which mandates that the plan participant must be offered an option for a surviving spouse annuity. To select the survivor’s benefit, choose a joint and survivor annuity payment, which means the amount you receive during your lifetime is reduced, but the income stream continues after your death.
You can choose not to receive this benefit, but only with both spouses’ signatures on a form witnessed by a notary or plan representative. - Be aware of how Social Security benefits change after a retiree dies – The Social Security spousal benefit pays up to one-half of a retired worker’s benefit while the worker is living, but it stops when that worker dies. However, a surviving spouse who is at full retirement age or older gets all of the deceased worker’s full benefit or their own, whichever is larger.
Surviving spouses who are younger receive reduced survivor’s benefits, depending on their age. When they reach full retirement age, they can choose to receive their own full benefit if it’s higher than the reduced survivor’s benefit that they’d been receiving. - Consider the impact future events will have on your finances – Think about healthcare needs, and whether your spouse will have company provided healthcare coverage after your death, or if they will have to purchase their own. In addition, you should also seriously consider whether you should buy long-term care coverage.
- Get the advice of a reputable financial planner – If your retirement assets include a combination of 401(k) plans and IRAs, it’s a good idea to sit down with a certified financial planner to get some projections of how long your money will last. A competent planner can offer suggestions as to how to make the most out of what you have.
