1-minute video: How Can You Take Care of Your Spouse Just in Case Something Should Happen to You?
Still working? About to retire? Retired? How might you replace lost income for the survivor? Money needed – a lump sum – may come from savings/investments set aside, life insurance, a standby reverse mortgage line of credit, or some combination of these. That lump sum is then invested in a manner to produce the lost income.
A common reference point for all income planning is what I call your Lifestyle Standard of Individual Living (SOIL). How might you easily determine your Lifestyle SOIL – by using your bank statements – though not as commonly thought of from a budgeting frame of mind. Budgeting is icky, laborious and often a futile exercise where the goal is lost in trying to keep track of details. The bank statement approach works at the 30,000 foot level to give you a better planning metric and broader insights. While working, you want to be careful and avoid Lifestyle Creep, where trying to sustain a higher lifestyle becomes more and more difficult, especially as a goal for retirement.
Most people, when thinking about retirement planning as a couple, think in terms of joint income TODAY. However, retirement planning actually has THREE (3) phases for couples: 1) income today as a couple when YOU BOTH ARE HERE, 2) survivor income later when ONLY ONE IS HERE, and 3) estate planning when NEITHER ARE HERE. These same three phases exist at any age for couples.
Mentioned in the video: Considerations between joint (a joint pension ideally of 100% for survivor so there is no pay cut; or some other percentage for the survivor) versus single (a pension with 0% for survivor; or maximum pay cut) often refers to a pension or annuity payments.
Social Security also has important survivor considerations which are discussed in these articles in more detail. For couples, maximizing the higher earners Social Security benefits through waiting as long as possible, up to age 70, is how to maximize the survivor’s Social Security benefits too. Social Security always has an automatic survivor pay cut where the lowest benefit “goes away.”
Planning early on is important because decisions made early have an automatic ripple effect into choices and options in later phases. Poor decisions early may preclude choices later.
Of course, if single, there are no survivor income planning needs. However, the estate planning phase is still important.