Among the risks that married couples face in retirement, this one is unavoidable. It’s the risk of becoming a widow or widower. And that risk comes with some dramatic consequences, according to a Society of Actuaries report, "Managing Post-Retirement Risks: A Guide to Retirement Planning."
According to that report, the death of a spouse is often accompanied by a decline in economic status:
- Some income may stop at the death of a spouse or former spouse.
- The death of a disabled person’s caregiver spouse may bring financial problems at a very difficult time.
- The surviving spouse may not be able or willing to manage the family’s finances.
- Inability to cope with a spouse’s death or terminal illness contributes to high rates of depression and suicide among the elderly.
To be sure, it’s difficult to predict which spouse will live longer in individual cases, according to the SOA. But, on average, women are widowed more often than men.
So, what can you and your spouse do to manage the risks associated with becoming a widow or widower?
Set aside time to talk.
Talking about money matters together is a great gift couples can give each other, says Kathleen Rehl, author of Moving Forward on Your Own: A Financial Guidebook for Widows. “Start by saying, ‘Honey, because I love you so much, I want us to talk about some important money issues together—that are really important to know about for the time one day when one of us is gone.’”
Others agree. “First and foremost, spouses - especially women - need to know about the household’s finances, including where all accounts are held,” says Cindy Levering, a retired pension actuary and volunteer for the Society of Actuaries. “In particular, it is very important that they know what benefits might be available from employment-based plans — pension, 401(k), life insurance, and medical for example — and how to contact the appropriate human resource people to access any benefits that may be due.”
If you avoid these conversations, Rehl says, “a surviving spouse may be in a double whammy — hit with grief and emotions of widowhood plus not having many clues about their money situation.”
Levering also suggests sharing financial information and contacts with children, not just their attorneys. “I know a lot of people don’t want to talk about their finances with their children but it is important that someone know what to do if necessary,” she says.
Run what-if scenarios
Determine whether your financial plan will provide enough lifetime income to the surviving spouse. Note that expenses don’t necessarily decrease by half after one spouse passes away, says Levering. Also note that the surviving spouse may have less to live on if he or she has to spend down assets to take care of the spouse that passes away, says Levering.
If, after running your what-if scenarios, there’s a shortfall, consider increasing your savings, trimming your expenses, investigating a reverse mortgage and/or downsizing, and buying life insurance.
Delay Social Security
If you’re the higher earner, consider delaying Social Security until at least full retirement age (FRA) or better yet until age 70, if there’s a good chance that your spouse will outlive you, says Betty Meredith, president of the International Retirement Resource Center. Why so? “The surviving spouse collects a higher lifetime benefit based on the primary earner’s benefit,” she says.
Also consider, if you have traditional defined benefit pension plan, choosing the joint-and-survivor annuity instead of the single life annuity.
Check all your beneficiary designations
Make a list of every place you have ever worked and contributed to employer-sponsored retirement plans. “When a person divorces and remarries, old beneficiaries stay in place until they are changed by the account owner,” Meredith says. “It happens all the time where an ex-spouse or other parties receive retirement funds upon the workers’ death instead of the current spouse.”
Do the same for all life insurance plans, bank and credit union checking and savings accounts, titling on real estate, and the like, says Meredith.
Make sure credit cards and other accounts are set up so both spouses have access, says Levering.
Consider long-term care. Think what would happen if one or both spouses needed long-term care. “Purchasing coverage sooner rather than later may be prudent,” says Levering.
Hire a financial team
Put in place a trusted team of financial advisers, including an attorney, certified public accountant, and certified financial planner, that, Meredith says, “the surviving spouse will feel comfortable working with and trust to help them transition to a life without you, especially if they have typically not been involved in the financial side of your marriage.”
Estate plan up to date?
Create or update your estate-planning documents, including wills, trusts, advance directives, living wills, durable powers of attorney for health care, physician orders for life-sustaining treatment.
“Consider filing a ‘do not resuscitate’ or DNR order with your local hospital and have readily available if needed,” says Meredith. “Many people want to avoid aggressive attempts to prolong their life, but medical culture and practices often do not support these wishes. This can help prevent racking up large medical bills for the surviving spouse to pay.
For her part, Anna Rappaport, chair of the Society of Actuary’s retirement task force, recommends reviewing all property with your attorney and making sure you understand what is individual and joint names, and how it might be disposed of.
Also consider planning your funeral arrangements in advance. Read the SOA’s Estate Planning: Preparing for End of Life booklet.
Meredith also recommends moving to a home where a surviving spouse can more easily manage upkeep, taxes, have social network, and the like.
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