Death Of A Spouse Impacting Retirement Savings

The Death Of A Spouse Could Impact Your Retirement Savings

The death of a spouse is hard to comprehend much less plan for but financially it could result in potential loss of retirement savings and retirement income. Not adequately planning for death has often left surviving spouses in a terribly difficult situation. Unfortunately, there are usually three things surviving spouses encounter after losing a loved one. The surviving spouses may:

  • Have lost a significant part of their retirement income
  • Not have the knowledge or desire to manage finances. 
  • Be suffering from age related cognitive decline and may not capable of making complex financial decisions

Additionally, many spouses faced nursing home care and/or hospital stays prior to passing. These costs, coupled with the loss of future income, means the average retiree may never be able to meet their basic financial retirement income needs. In fact, surviving spouses who were financially comfortable while married may find themselves living in poverty during latter part of their lives. An interesting study on death and poverty by Princeton University highlights this issue.

Whether a spouses passes prior to or after retirement, the subsequent risk to the surviving spouses retirement income can be appropriately addressed with retirement planning.

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Retirement Income Risk: Potential Loss Of Retirement Savings And Contributions

Saving and compounding growth over a lifetime is a solid way to create a retirement savings nest egg for later use as retirement income. Sadly, when a spouse passes away, this type of funding usually stops due to financial constraints. The result is a loss of savings (usually tax deferred) and the corresponding compounding growth that comes over time.

Also, at a spouses death, there is no further contribution to Social Security. Depending on the circumstances and age, this could result in a significant decrease in Social Security benefits at retirement. Social Security is, for many, a large portion of retirement income. Any loss of contributions will have a negative impact on the amount of retirement income you receive. 

Retirement Income Risk: Potential Loss Of Retirement Income And Increase In Taxes

When a spouse passes away in retirement, you are not entitled to collect both their check and your check which means a decrease in your retirement income. Usually, you can keep the greater of the two but not both!  As most people fully rely on social security as a large percentage of their retirement income, losing a spouse could become a financially disastrous situation. 

If the deceased spouse had a pension and depending on the income payment options selected when the pension income started may also result in reduction of retirement income.

In addition, the tax filing status will change from married to single which often means placing you in a higher tax bracket.

Use A Fixed Index Annuity With Accelerated Benefits Plus Income Options to Secure Your Retirement Savings And Retirement Income

There are a couple of strategies/decisions that can really help make a difference for the surviving spouse by securing their retirement income.

  • Choose joint and survivor options when taking your pension. Choosing the single pay option for higher income puts the spouse at risk
  • Maximize Social Security by deferring the larger of the two benefits.  Once a spouse passes, you get to chose one of the payouts. You don’t get both
  • Fund a retirement annuity to include a joint and survivor option 

Fixed Index Annuities are a great solution for ensuring retirement income remains stable and secure for the surviving spouse. One of the more popular features of newer annuity products are the ability to add on income options that offer guaranteed annual increases. The purpose of this option is to ensure your annuity payments keep up with inflation so you don’t lose purchasing power over time.

Fixed index retirement annuities offer:

  • Tax deferred growth 
  • Benefit of participating in market growth
  • Assurance of never losing money in down markets
  • Protected retirement income guaranteed for life – while maintaining liquidity of your assets
  • Income options that guarantee annual increases
  • Accelerated Benefit riders to cover chronic and terminal illnesses
  • Peace of mind…Never outliving your income!

For retirees concerned about losing a spouse or leaving a spouse behind, fixed index retirement annuities are a popular solution that offer lifetime income protection and peace of mind!

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Loosing A Partner Should Have To Mean Losing Financial Independence

Example:

Mary who is 75, recently lost her husband after a lengthy illness. Unfortunately, the long term care needed for her husband depleted a significant amount of their savings. Fortunately, Mary has social security but it will only provide $1,400 or  $16,800 annually (avg amount per individual in 2018).  

Mary and her husband could have done a few things prior to her husband becoming ill that potentially could have helped Mary and her husband financially.

  • Mary and her husband could have purchased a life insurance policy (while healthy) that would have provided living benefits in case of critical or chronic illness. Living benefits means a portion of the death benefit is paid WHILE LIVING when a defined need exists. If neither Mary or or husband required care, the insurance policy would pay a normal death benefit to the surviving spouse.
  • Mary and her husband could have potentially used a portion of their savings to purchase a retirement annuity that would provide guaranteed income for life on top of the Social Security benefit.  Additionally, many annuity products feature options to keep pace with inflation. 

Either way, Mary would have been financially more secure having planned against the risk of losing a spouse and unexpected long term care costs.

 
Retirement income risks

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