Number One Retirement Surprise: Leaving Money For Surviving Spouse

The National Association of Personal Financial Advisors was recently polled to get an idea of common surprises encountered by their clients–those planning for retirement. A a Chicago Tribune article highlighted one of the most common responses from those advisors: a failure to appreciate the need to set aside significant income for a surviving spouse.

Our New York estate planning lawyers understand the inherent complexity of this issue. It is one thing to examine how long an individual is expected to live, subtract that from their current age, and determine how much is needed each of those years. By no means is this an exact science, but it is somewhat intuitive to roughly understand how much a single individual needs to retire. Things quickly get confusing, however, when spouses get thrown into the mix. Tackling this dilemma for locals is a key part of New York estate planning.

As one planner interviewed for the story noted, “One thing people don’t plan for is the reduction of income if a spouse or partner dies.”

Think about Social Security. When two partners are alive, each may receive Social Security benefits. However, if one of the spouses die the income will disappear. Even taking into account a larger benefit for the surviving spouse, the overall family income will be lower than before. Similar problems can arise for those living off a pension. A spouse’s death may cause the pension income to dry up. If not accounted for, this can thrown some seniors into a financial tailspin, with insufficient funds to pay monthly obligations.

One professional interviewed for the story explained a recent client whose retirement income dropped 35% following her husband’s passing, with a marginal 10% decrease in expenses. This ultimately required a significant lifestyle change for the woman at the very moment when she craved stability following the loss.

Estate planning attorneys appreciate the value in preventing this situation. Various tactics can be used to minimize the long-term consequences and provide more stability no matter what the future holds. For instance, a higher-earning spouse may choose to refrain from taking Social Security. This may earn her “delayed credits” up to 8% a year until the age of 70. If that spouses passes on, the surviving spouse may be able to switch to the value of the other’s benefit, including delayed credits and cost-of-living adjustments.

For pensions a “joint and survivor annuity” might be appropriate, where less is paid out monthly for the peace of mind of knowing that income will continue even if the pensioner dies first.

See Our Related Blog Posts:

Surviving Spouses Should Seek Help from Financial and Legal Professionals

Estate Planning May Be Family Decision

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