"Get Your Finances Ready for Retirement"-Surviving The Loss of a Spouse
Monday, October 27, 2008SUSIE GHARIB: After a long career, retirement should be a chance for you and your spouse to relax and enjoy the fruits of your labor. But sometimes things don't work out that way and a husband or wife will be left alone. Of course the death of a spouse is emotionally devastating, but that's not the only toll it can take. In tonight's segment of "Get Your Finances Ready for Retirement," Connie Hicks looks at ways to ease the financial fallout of losing a loved one.
CONNIE HICKS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For almost three decades, Bill Richards was a pilot for Eastern Airlines. And after his retirement, he and his wife lived comfortably. But following a two-year illness, he passed away. His wife Kitty was stunned when the airline pension they had shared suddenly dropped by two-thirds.
KITTY RICHARDS, WIDOW: And as long as he was living, we've got a good pension. But the minute your husband passes away, you don't get that. It goes down.
HICKS: Kitty's situation isn't unusual. Because women tend to live longer than their husbands, this means they're likely to be spending years on their own. And often they find out, too late, that they face a financial shortfall. Most of us don't like talking about what's going to happen to us financially when a spouse dies, but makes a lot of good sense to plan for it in advance, insuring that the survivor is well taken care of. Michael and Ann Madaio, married for 61 years, have discussed many times what will happen financially after one of them dies. Michael is older than Ann and has a pension. Ann has the medical benefits that cover both of them.
ANN MADAIO, RETIREE: If I should die first, then he loses every thing as far as medical, dental and drug he'd have to go on his own.
HICKS: And Michael if you die first, Ann is, she gets what. What will she get then?
MICHAEL MADAIO, RETIREE: She gets my pension, part of his pension and part of my Social Security.
HICKS: Their planning impressed Linda Norman, the certified financial planner they hired.
LINDA NORMAN, CFP/RAYMOND JAMES FINANCIAL SERVICES: They've planned very well for two people living with two incomes, but the piece that's missing is what happens when the one dies and is there an income loss and most often, very often, there is.
HICKS: And CFP Philip Lubinski notes there's often another hit for the survivor: at the same time his or her income goes down, income taxes could rise.
PHILIP LUBINSKI, CFP/FIRST FINANCIAL STRATEGIES: Either the pension will go down, Social Security benefits will go down, but in many cases because that surviving spouse is now a single tax filer, his or her income tax bracket will go up.
HICKS: Lubinski says it often helps to change the mix of the survivor's investments, to reduce interest and other income that is taxed at the top rate. But experts advise couples to plan for the inevitable by taking these steps. Begin by taking a financial inventory of what assets each partner has. If there is a pension involved, find out if the survivor is entitled to the spouse's pension. See if the survivor will qualify for added Social Security benefits. Provide for future health expenses and consider ways to provide added income for the surviving spouse. Kitty Richard's financial planner, David Weiss, put some of her assets in a variable annuity.
DAVID WEISS, CFP/RUGGIE WEALTH MANAGEMENT: We wanted something that would provide that steady income to her but also to provide her some protection on the downside.
HICKS: For their part, the Madaois are in good shape.
M. MADAIO: Because I'm older than she is and I thought it would be my intention to leave her well off in case anything happened to me.
A. MADAIO: Well off? I don't know about how well off.
HICKS: It's important to remember although one person can live more cheaply than two, the savings aren't as great as you might think. The Society of Actuaries reports a single person still needs 80 percent of the income that a couple requires. Connie Hicks, NIGHTLY BUSINESS REPORT, Lady Lake, Florida.
