Planning for Your Financial Survivorship Needs as a Couple

“Nothing is certain but death and taxes,” as the old saying goes. And while the question of spousal survivorship is an uncomfortable topic, it’s far too important to put off.

No one lives forever. What will happen when you or your partner pass away before the other? In that event, what is your plan?

To help you prepare ahead of time, here are some general guidelines for developing and managing a long-term retirement and financial survivorship strategy. They stress the importance of “income continuity,” or having uninterrupted income streams in place after the first death in a couple.

Couples today also face the prospect of a long retirement, thanks to advances in medicine and technology. These innovations make living to 100 not as difficult as it was in the past. No sweat. These guidelines can help with planning for the challenges of a potentially decades-long retirement, especially when there is a significant age gap between partners.

But before starting, consider establishing a relationship with a financial professional if you don’t already have one. You may be quite capable of developing a plan yourself.

But at a minimum, a financial professional can review your plan, look for shortcomings, provide some alternative ideas, and keep you abreast of changing laws and regulations with respect to your financial picture.

That includes planning for federal and state income taxes. You may find they can enhance your existing income plan with their knowledge of the various types of retirement income programs: Social Security, pensions, 401(k)s, IRAs, Roth accounts, annuities, reverse mortgages, and so on.

Developing and Managing a Decades-Long Retirement Plan

Building a well-defined retirement strategy (“The Plan”) will become your master tool for managing the financial affairs of the household through retirement.

It’s outside the scope of this article to go into any significant detail about the income and expenses of your retirement budget. But for more information about how much retirement spending might add up to, check out our other post, What Might Spending Look Like in Retirement?

Your best starting budget model is the one you are living now, adjusted year-to-year over the go-go (60-75), slo-go (75-90), and no-go years (90+). A plan will help you realistically structure your spending lifestyle within the retirement income and assets you will have.

Don’t forget about inflation, which will definitely have a long-term impact on the purchasing power of your money.

While even economists have trouble with predicting what inflation will be in 12 months, using an annual inflation rate of 2%-3% in your retirement spending and withdrawal plan is a solid approach. That is in line with recent historical data, and you should consider running different numbers for inflation in your forecasts so you can be ready for a variety of outcomes.

Planning for Spousal Financial Survivorship

In addition to the Plan, you will need to plan and prepare for how the remaining partner goes forward with enough income to ‘guarantee’ a continued financially secure retirement.

The more you can plan and prepare, the better. Because right after a beloved partner passes away, the surviving spouse will be consumed with grief and the stressful demands to make funeral and burial arrangements.

Not only that, they will deal with all the necessary paperwork required when someone dies. And while all that is going on, the monthly bills will still be coming in and will still need to be paid.

In every household, there is always one person who handles the financial affairs: bills, income and cash-flow, portfolios and investments, and taxes. That may be you, or that may be your partner, so you need to have a plan that will work for both parties.

Obviously, it’s going to be easier for the person that has already been handling most of the financial affairs of the house.

It’s going to be potentially overwhelming for the surviving spouse who has been saying for years, “If he (or she) dies first, I’ll be up a creek!” The objective is to make sure that person isn’t up a creek.

Make a Master List, and Check It Twice (Every Year)

The first thing you should do is sit down with your partner and work together to make plans for the day one of you passes away.

In the beginning of this process, death may seem very far away, so revisiting your plan annually may be fine. But as you age, it’s a good idea to review your plan every six months or so to add, delete, and modify as conditions change.

Make a Master List of everything the surviving spouse will need to keep the ship sailing smoothly. Make sure that list has the following attributes for each item: (a) item name; (b) description; (c) physical, digital, or paper; (d) location; (e) access (login/password, key, security code)

• Your 30-year plan spreadsheet
• All logins and passwords
• All files, both digital and paper
• All professionals’ contact information: attorney, tax specialist, financial professional
• Recent financial statements
• Recent tax filings
• All banking accounts (and files)
• All short-term and long-term assets (and files)
• All short-term and long-term liabilities (and files)
• All credit cards, debit cards, ATM cards, wallets (and files)
• All income streams (and files)
• All expenses (and files)
• All filing cabinets
• Instructions on how to start the computer and access computer files (login/passwords)
• Relevant financial apps on smart phones (login/passwords)
• Checkbook(s)
• Safe deposit box, safe, garages, sheds, storage lockers, et al (plus keys and/or security codes)
• Second homes, cabins, condos, cars, boats, et al (plus keys and/or security codes)
• All keys, security codes, lock combinations
• Anything and everything else you can think of

This is a generalized list, but it’s enough to get you started.

Assuming you make this list on a computer, send a copy of the computer file to each other; print a hard copy of the list and put it in your 30-year plan file. Then send a copy to your financial professional and/or the attorney you expect to use for the ultimate settlement of your estate.

When one partner dies, the surviving partner needs to use the contact information on the Master List and immediately: (a) inform all sources of revenue that one partner has died (Life Insurance in particular), and b) confirm beneficiary status and the amount and continuity of monthly income. 

The Notification of Death (many copies will need to be mailed out) is generally coordinated with the Funeral Service in your town. 

Other Important Follow-Up Steps

Also, contact all sources of expense and confirm monthly amounts, and whether or not the expense is to be paid by check, ACH, or credit card. In all these cases, the surviving partner needs to register themselves as the responsible party on the account (e-mail, phone) to receive all communications.

By making this Master List, you are really killing two birds with one stone.

You are creating your retirement continuity plan for when one dies. And you are laying the groundwork for the eventual liquidation of the estate and the transfer of net proceeds to your beneficiaries after both of you have passed away.

The Financial Professional as Co-Pilot

With a Master List in hand, you should meet with your Financial Professional to review your list.

You will appreciate the support and expertise of a financial professional when the time comes. What’s more, you may be the one in charge of the financial affairs all by yourself.

This will make it possible for the financial professional to become your “co-pilot” as you solo-navigate the remainder of your retirement. The Financial Professional will scrub your list and 30-year plan to come up with things you might have never thought of.

Not only that, they can always be there to backstop you should you get confused or overwhelmed with the responsibility.

Longevity and Wage Gaps

Who knows how long you will live?  There are statistical averages: 84 for men; 87 for women. 

But this is such a personal calculation which you will have to estimate based on your health profile today, and what you can learn from your parents and siblings.  If you live a long life, you want to make sure you have enough money to support you to the end.

Generally, we think of couples entering their retirement years at the same time. But what if the there is a sizable age gap between the partners? 

Your 30-Year Planning Spreadsheet is the master tool you can use to model the staggered income and expenses based on who retired first, and who is still working and for how long.

Make your best estimates of work longevity (and associated income), and retirement longevity, and then fit your expense budget to the income streams that will come in over your planning horizon.

Life insurance is one obvious tool to insure against the loss of a partner. You might consider exploring “first-to-die” life coverage possibilities with your financial professional.

Life insurance can be helpful especially for protecting against the loss of the one who was the primary earner in a couple. Oftentimes that person tends to drive a larger Social Security and pension payment, not to mention possibly larger other retirement account revenue streams.

Exploring Choices to Solve the Longevity Gap

Also, check with your financial professional about other possible strategies at your disposal: special annuities, bond laddering, or payments from equities may be a few options. The goal is to see what makes for you that can provide income – and that bridges age gaps and longevity.

Since we talk about “Safe Money” on this website, it’s good to note that annuities are the only financial product capable of generating a guaranteed lifetime income.

Tax Mitigation

Account withdrawals during retirement from 401(k)s and IRAs are taxed as ordinary income, and Social Security benefits have their own tax requirements.

Your financial professional can help you (a) evaluate the tax implications of your various sources of income; and (b) explore ways to generate tax-free income.

Balancing Growth and Safety

Apart from Social Security, your retirement income streams most likely are a blend of one or more sources:

• Traditional pension
• Private annuities
• Withdrawals from a 401(k) or IRA
• Withdrawals from a Roth account of some sort
• Mutual funds and stocks
• Payments from real estate holdings, business ownership, or other assets

The market value of these assets can vary depending on different economic conditions. But for many of them, the market value is either directly or indirectly pegged to the public stock market. 

The stock market historically has produced a steady return over a long period of time. But in exchange, the investor has had to accept cyclical periods of price decline and volatility.

As the saying goes: “The market will go up and down and up and down, but it will always go up more than it goes down.” Easy to say, but depending upon your tolerance for risk, it can be emotionally difficult to hold steady during bear markets. 

Taking Measure of Risk Tolerance

Knowing how much of your retirement nest egg to keep in market-driven accounts is complicated.

It depends upon a number of factors, including: (a) how much tolerance you have for volatility in the equity markets; b) the timing of when you retire; and (c) how much lifespan is left to safely expect a long-term growth rate on your holdings. 

Once again, your financial professional can help you balance growth versus security in your various income-producing assets over the stages of a 30-year retirement.

Accommodating Unplanned Expenses and Emergencies

Life throws us curveballs when we least expect it (a health crisis; a major house repair; a lawsuit; a flood or fire) that may create a large one-time or recurring bill to pay. 

You can handle this kind of unexpected punch by:

• Slowly building up an emergency reserve fund that you don’t touch,
• Taking a one-time withdrawal (or loan) from a retirement account, or
• Extracting some equity from your home.

Also, you may be able to insure against some risks beyond the normal home, auto, and health insurance coverage most people carry.

For example, you should consider cost-relieving strategies for long-term care, such as Long-Term Care Insurance (LTCI), in the event one partner requires a high-degree of daily nursing care and assistance.

These are complicated financial choices, so always consult a professional. This isn’t something you hope will happen, but you know you have these backup plan options in the event of an unforeseen emergency.

When the Surviving Partner Needs Help

For much of our lifetimes, we take for granted that our bodies and minds are healthy every day when we wake up. But in retirement, the body ages and so does the brain.

So, there are many things that can happen that can make us lose our capacities to do the physical and mental work: Dementia, Alzheimer’s, Parkinson’s, arthritis, cancer, to name a few.

With a couple, one partner can become the caregiver for the other and together the couple can navigate the course. But what happens when one partner dies and the surviving partner becomes incapable of managing the financial affairs of the household?

This is where a financial plan must integrate with a comprehensive estate plan. A comprehensive estate plan could include a living will, healthcare directive, power of attorney, and plan for the eventual liquidation and transfer of net assets to beneficiaries.

Preparing Ahead of Time for Survivorship Situations

Long before anything like this would happen, a couple needs to sit down and talk this all through.

What if one of us passes away and the surviving partner starts to lose their cognitive abilities? Who will be that person you trust to manage the financial affairs of the household and to make healthcare decisions?

Your plan must leave that designated person with the legal authority, resources, and directives they need to take care of the remaining partner. While outside the scope of this article, a sample plan might look like this:

Financial: (a) 30-Year Retirement Plan with adequate income and assets; (b) Master List; (c) Financial Power of Attorney

Estate: (a) Revocable Trust; (b) Will; (c) Financial Power of Attorney; (d) Letter to Executor referencing a, b, c

Healthcare: (a) Advance Directive and Durable Power of Attorney for Healthcare; (b) Letter to Doctor referencing (a)

Get Started on Your Plan Today

Trying to plan for every bend and bump in the road to retirement is almost impossible, and really not necessary. That is, as long as your plan has a sufficient amount of financial and strategic backup contingencies to absorb a few shots across the bow when unexpected expenses pop up.

There is no need to create your plan all at once. But do start now, and work on it every time you do your monthly budget. You will find that regular planning gives you confidence, and confidence gives you peace of mind.

And, if you aren’t doing so already, working with a financial professional can go a long way toward achieving long-term financial confidence. If you don’t yet have a guide, financial professionals at SafeMoney stand ready to assist you.

Use our “Find a Financial Professional” section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.