Double Life

Richard Quinn

A FEW YEARS BACK, I was conducting a retirement planning seminar. At one point, I talked about survivor benefits under our company’s pension plan. As I outlined the benefits, I noticed a strange look on one woman’s face. She was the spouse of an employee.

A few minutes later, I spoke about health benefits, explaining that a surviving spouse was required to pay 100% of the premium. Upon hearing that, the woman took a rolled-up newspaper and began beating her husband about the head. “You never told me about that stuff,” she shouted. The woman had just learned that, upon her husband’s death, her main income source could stop or be cut in half, depending on election the couple made, and she’d have to pay hundreds of dollars a month for health insurance.

According to Social Security Administration data, 58% of Americans age 65 and up are married, 25% are widowed, 12% are divorced and 5% never married. While 4.9% of married elderly women live below the poverty level, that percentage leaps to 16.3% for widows, 18.4% for divorced women and 26.1% for those never married.

Retirement planning typically focuses on the individual: Will you outlive your money? But in most cases, it isn’t me, but we. Income streams frequently need to be structured over two lifetimes, not one.

Based on Social Security’s life expectancy calculator, a 65-year-old man can expect to live to age 84, or 19 more years. But let’s say the spouse is only 55. She can expect to live to age 86, or 31 more years—12 years beyond his life expectancy. And these, of course, are just averages, with a decent chance that one or both spouses will live into their 90s.

Some expenses will decline with the death of a spouse, but others won’t. Rent or mortgage, property taxes and car payments may remain the same. About 80% of people approaching retirement have debt, often a significant amount, which will still need to be serviced after the first spouse dies. The surviving spouse may also face escalating health costs as he or she ages and, with no spouse to help, there’s a greater likelihood of long-term-care costs.

If you’re fortunate enough to have a pension, the law requires a survivor annuity as the normal form of payment for a married couple, unless the spouse waives that right. But the typical plan provides a survivor benefit equal to just half of the retiree’s pension.

What about Social Security? A surviving spouse generally receives 100% of the deceased spouse’s monthly benefit. Suppose the deceased spouse’s benefit was $2,000 a month and the surviving spouse’s benefit is $1,000. After the first spouse’s death, benefits would drop from $3,000 a month to $2,000—but household costs may not decline nearly as much.

Meanwhile, if you’re living off withdrawals from a 401(k) or IRA, planning is even more complicated. How much can be withdrawn each year without depleting assets needed to cover two lifetimes, especially if one spouse is several years younger? There’s a chance both spouses could live to ripe old ages—and that possibility means you need to be extra cautious in drawing down savings in the early retirement years.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Age-Old Myths, Wait, There’s More and For Your Own GoodFollow Dick on Twitter @QuinnsComments.

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Ginger Williams
Ginger Williams
1 year ago

Early in my career, Mrs. M told me a story to explain why I should learn about money. Mrs. M had married young, stayed home until her youngest child was in school, then took an office job at the school. Her husband managed the family finances and they lived comfortably. He retired a little early due to a serious health issue, but they were still comfortable. Several years after he retired, a friend mentioned that her husband was a little upset that she’d refused to sign a paper waiving her right to a survivor annuity. Mrs. M had always signed everything Mr. M told her to sign, and said so. Friend explained why she didn’t sign that paper. Mrs. M grew concerned, asked Mr. M, and learned that his pension died with him because he didn’t want to have a reduced income. The next time an “investment advisor” came to the school, Mrs. M signed up for the maximum allowed payroll deduction. As she put it, Mr. M just wasn’t very good at imagining what her life would be without him, because they’d been together so long, and she should have paid more attention. She encouraged me to start investing and to learn about money, because even good husbands like Mr. M don’t think about the possibility that they’ll die first.

I’ve been reading about personal finance since that lunch conversation with Mrs. M. When I retire comfortably in a few years, much of the credit will go to Mrs. M for prompting me to learn about money.

Thomas Taylor
Thomas Taylor
1 year ago

Thanks for your comment Ginger. My wife has been a reluctant participant in our finances but I’ve always been very open and forthcoming. She had 34 years in a State/Local government position and receives a small, but decent pension. She was also wise enough to participate in a supplemental 401(k) plan and I encouraged her to increase the dollar amount contributed steadily over the years. I’ve been in the private sector most of my career and made decent money and I’ve always been a investor/saver. She’s almost 9 years older than me, so I felt comfortable waiving my rights to her pension in order for her to receive the maximum amount. If I die before her, she will still have her pension, SS, her 401(k) and mine as it goes to her first. If she happens to die first, my 401(k) and SS (and remaining amounts in her 401(k), if any) should be more than enough to live on. Without having a crystal ball at our disposal, this decision seemed the right one for us.

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