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Main Street Money: Husbands, consider your wives when planning retirement

I recently did a retirement planning workshop for women. It’s been on my mind for quite a while, ever since I’ve seen the messes men have put their wives in because of bad planning. One such is a good client of mine, call her Alice, whose now deceased husband, Ted, elected a single-life option on his pension and took Social Security at 62. I came across this couple after Ted’s serious and irrevocable benefits elections had been made. There was no malign intent involved; Ted simply did not understand the potential consequences of his actions. Once pointed out, he was very open to doing whatever possible to fix things. Our options were limited; I was able to get them a single-premium life policy of $150,000 and an income annuity of $15,000 per year.

The resulting problems for Alice, however, were severe. While Ted was alive, their income was comprised of a very healthy pension of $43,000 and two Social Security benefits: Ted’s early Social Security election of $18,000 per year, and Alice’s Social Security of $17,500. They had no debt, and life was good. However, they also had limited assets as most of Ted’s retirement planning had involved funding his pension. You know, the pension that died with him.

The pension wasn’t the only thing that died with Ted. Alice’s Social Security benefit went away as well. When one spouse dies, the surviving spouse is entitled to the higher of the two Social Security benefits, but not both. That meant Alice lost Ted’s pension and her Social Security benefit, meaning her income fell from $78,000 per year to around $18,000, plus the $15,000 per year annuity payout.

Had Ted done the proper planning, focusing on the highly predictable (80% probability) consequences of his dying first, their income while he was alive would have been a joint pension of $36,550, and had he waited until full retirement age for Social Security, $24,000, plus Alice’s benefit of $17,500. That would have been $78,050 per year, only $450 less. But the difference for Alice after his death would have been huge. Instead of $18,000 per year, her survival benefits would have been $60,550. Add to that the annuity and life policy, and she wouldn’t have lost a dime. And all it would have taken was some good planning that was focused on her needs as well as his.

In another case, a good friend, call him Bob, died recently. Bob, in his mid-50s, had had lifelong coronary issues. He had no life insurance, since the only insurance available, through work, had ended when his employment did, long before he died. He left behind a relatively young widow, Carol, and three kids, two in college and one younger. You can imagine the struggle his family has gone through, but there are things you might not be imagining. Like what happens when the owner of the credit cards dies and the accounts go away, too. In addition, most of the credit for the family was in his name, as well as the bank accounts. Luckily, Carol was fully employed, but that was a near-miss; just a couple years earlier she had not been. Imagine if she needed to find a job while dealing with everything else.

Both Bob and Ted were good men who loved their families. Neither of them would have deliberately put their wives and families at risk; yet they did. Dire financial risk that would be with them for the rest of their lives. Just doing what men often do, thinking primarily of themselves.

Or not thinking at all. It wasn’t difficult to imagine this happening. Eighty percent of men die married, while 80 percent of women die single. Women are 80% more likely than men to be impoverished at age 65 and older. Women age 65 and older typically have income 25 percent lower than men, and as men and women age, men’s income advantage widens to 44% by age 80 and older. Women’s poverty rate increases with age, change in marital status, and across ethnic backgrounds. Add to that the nearly five-year life expectancy difference between men and women, and it’s easy to see the need for women-focused planning.

Here are the basics. If the male spouse has a pension, elect joint and survivor, with the maximum amount going to the spouse. The 50% option is better than nothing, but it still puts the wife in jeopardy if the pension is the main source of income. Delay Social Security benefits on the higher-earning spouse for as long as possible. If this means working longer, that must be considered. Sixty-five was designated the retirement age when the male life expectancy was 63. Make sure both spouses are on any deeds, are named trustees and beneficiaries, and both should have separate bank and credit card accounts in their names. Be sure you have some plan for long-term care. This doesn’t necessarily mean insurance; just know what you are going to do. Recognize the husband will likely go before the wife, and plan for her life as a widow. Because, 80% of the time she will be.

Stephen Kelley is a recognized leader in retirement income planning. Located in Nashua, he services Greater Boston and the New England areas. He is author of five books, including “Tell Me When You’re Going to Die,” which deals with the problem unknown lifespans create for retirement planning. It and his other books are available on Amazon.com. He can be heard every weekend on the “Free to Retire” radio show on WCAP and WFEA, and he conducts planning workshops at his New England Adult Learning Center, located in Nashua. Initial consultations are always free. You can reach Steve at 603-881-8811 or at www.FreeToRetireRadio.com.