Double Life

Richard Quinn  |  June 12, 2018

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

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