Don’t forget the ladies!


As you may know, I spend a lot of time answering emails which have financial questions about retirement.  Very, very few people ask about survival benefits for the spouse.  Yet women outlive men by quite a number of years.  If you go to a living facility for retired or elderly people, you will find mostly women.  Once in a while there will be a man, but, curiously, when men reach the age of 100, they have a longer life expectancy than women of the same age.


About the only thought people give to survivor finances is when one spouse is near death or has just died.  Of course, there will be brief consideration when making a will or, for the few that will get a pension, when they are asked to choose a survivor benefit just before starting pension payments.


Pension programs generally offer only a few choices for the amount the survivor will get, perhaps, 100%, 75%, 50% and 0%.  Payments are higher when survivor benefits are lower.  Few retirees select 100% because the payments are considerably less.  The insurers behind the pensions know that the survivors are likely to be women who, because of their longer lives, will require payments for additional years.


Selecting 0% survivor benefit is so fraught with danger that the law requires a signature of the neglected spouse on the contract.   Therefore most retirees choose something in the mid range figuring that one person can live less expensively than two.  That’s true unless the survivor feels that she (or rarely he) can now purchase that jewelry or something else that the deceased spouse thought was unimportant or beyond their budget.   But even without the jewelry, the survivor is very unlikely to be able to live on just half of the amount required for two people.


Social Security offers no choice of survivor benefits.  Instead the survivor gets 100% of whichever is higher:  the deceased’s benefit or the survivor’s own benefit.  So, if a low-income spouse didn’t start Social Security until her (or rarely his) “full-retirement-age” (about 66), she would get 50% of the high-income spouse’s “full-retirement-age” benefit while the high-income spouse was living, but 100% of the high income spouse’s benefit after the high-income spouse dies.  In effect, this means that the surviving spouse will get 67% of the total Social Security they were getting before the death.


The high-income spouse will get 8% plus inflation for each year he/she delays the start of Social Security.  For those with sufficient savings to support themselves for a while without any Social Security receipts, this should encourage the high-income spouse to delay payments as long as perhaps70 when benefits are the highest.  However, many people feel they aren’t going to live long enough (roughly beyond 80) to break even.  Break even occurs when the additional amount of Social Security outweighs the amount they could have received from the savings they used to delay Social Security till 70.


So we come back to the fact that ladies, statistically, live longer than men.  There is more than a 25% chance that one spouse will live well into the 80’s.   Remember that 50% of the people will live to be older than their life-expectancy and 50% will not.  You don’t want to plan on financial choices that depend on your dying before your life-expectancy.  Not only that, but Social Security and pensions are the best financial old-age insurance you can buy—except the things you can do to keep healthy in your old age.  Ladies in particular should keep these things in mind.


Those who think ahead will plan to save enough so that they can delay Social Security at least till their full-retirement-age.  The same is true of pensions which also grow as the number of working years accumulate.  Getting prepared for your spouse’s survival is extraordinarily important.  This requires saving more and working longer than most people imagine unless they put some numbers down on paper or ask a professional planner for help.


Bud Hebeler