Losing a Spouse While in Retirement

In our ongoing series on retirement risks and challenges, married retirees must also deal with handling the loss of a spouse. From a personal standpoint, the death of a lifelong partner is a major loss psychologically and emotionally to the surviving spouse and family members. But there are also financial ramifications involved.

For instance, pension and annuity benefits may be reduced or even eliminated, depending on what type of payout option the retiree initially chose upon retirement. Decisions to begin lifetime payouts are often irrevocable, so it’s very important to think through all the options and decide what’s best for the family (and the eventual surviving spouse) at the start of retirement. A little planning ahead can greatly increase your odds of maximizing your retirement readiness.

Let’s use an annuity as an example. Annuity payouts can be set up so that you’re guaranteed never to outlive your income; we’ll call this the “lifetime payout” option. You can set this up so it pays for the life of one spouse or the lives of both spouses. The advantage of payments for a single spouse is that the payouts will be larger than if made for both spouses. The disadvantage is when that one spouse dies, all payments will stop; nothing’s left for the surviving spouse.

Now there are a variety of options you can take to ensure that the payments last for a certain number of years, or that some smaller amount of benefit will be paid to the surviving spouse. These may be good choices, but they also reduce the amount of the payments you’ll receive during retirement.

If you take your annuity payments based on both spouses’ lives, then the annuity will continue to pay until both pass away. The downside is that the payments will be smaller than if you had chosen payments based on one spouse’s life. If you should decide to make payments on just one spouse’s life and you have the choice, it should probably be based on the wife’s life. Women tend to outlive men, and if that holds true in your family’s situation, then the wife would be guaranteed a lifetime of income.

Another benefit affected by the death of a spouse is Social Security. Depending on the husband and wife’s work status, the surviving retiree spouse may receive the full amount of the deceased spouse’s benefit (generally if it is larger than the surviving spouse’s own benefit). Unlike pensions and annuities though, you don’t have any control over how your Social Security benefits are paid, such as over one life or two.


About Mike Wilson

Michael L. Wilson, MBA, CFP®, CRC®, is the owner of Integrity Financial Planning. Prior to founding Integrity in 1998, he worked for two years as a faculty member at the College for Financial Planning in Denver, training other financial advisors. Mike has 10 years of experience in the mutual fund industry, having worked with Fidelity Investments and Invesco Mutual Funds. He holds an MBA in Finance from Baylor University. Learn more about his work at www.integrityplanner.com.
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