Alert
Close

Last chance – give now. Before 2014 ends, help struggling seniors. Donate

Highlights

Open

Introducing RealPad by AARP
You and Your Town Contest-You could win an AARP RealPad
AARP-iPad-ePub-app
AARP Auto Buying Program

Jobs You Might Like

Most POPULAR

Viewed

Financially Speaking

Making Retirement Plans?

Don't forget spouse protection

Retirement Planning without Spouse

If you're married and planning your retirement budget, make sure to get spouse protection. — Photo by: C.J. Burton

En español | If you're married and making retirement plans, remember that there are two of you. Before you say "Duh," let me tell you about an old friend of mine, a widow I'll call Jean.

Jean and her husband, Charles, sculpted their retirement budget carefully. Then Charles died suddenly at 66, taking his pension and part of their Social Security income with him. Jean couldn't quite maintain her lifestyle. For a while, she spent too much, then she downsized, and now her children help (she's lucky they're there).

Sign up for AARP's Money Newsletter.

For all their planning, this capable couple hadn't asked a simple question: How will Jean live if Charles dies soon after they retire?

They forgot about spouse protection. They should have done two budgets — one for them as a couple and one for Jean if she had to soldier on alone. (If Jean had been the major earner, they should also have asked how Charles would live if Jean died.) Spouse protection also comes up when you're making decisions about your life insurance and various forms of retirement income.

Here's a quick checklist:

Your retirement budget. Project how much income your spouse would have if you died right after you retired. How long would it last at the level of spending you're aiming for? If your spouse will run out of money before age 100, you're not financially ready to retire (conservative planning, yes, but a reasonable span for those in good health).

Spouse protection may require that you work longer, live on less, or both. Charles liked to live right to the upper edge of their means and never imagined the problems he would leave behind. Jean loved him, but don't ask her now about what she thinks of his financial management.

A company pension. You might have the option of taking it either in a lump sum or as a lifetime monthly income. If you choose the lifetime income, there's another choice: a single-life pension that ends when you die (yielding higher monthly payments) or a joint-and-survivor pension that also covers your spouse (yielding lower payments).

The lump sum, which most retirees take, amounts to a gamble that your investments will do well enough to pay out more over your lifetime than the pension would. It's a reasonable bet for people whose assets are large enough to support them even if the market drops. If you don't have much in other savings, however, your spouse is best protected with a joint-and-survivor pension that's guaranteed for life.

Run, run, run away from the "pension maximization" schemes sold by some financial planners and insurance agents. They urge retiring workers to take the higher single-life pension and use the extra money to buy traditional insurance. If the worker dies, the spouse loses the pension but gets the insurance payout.

Unfortunately, this grand design often doesn't work out. The insurance costs eat into your lifestyle and the payout might not be large enough to support the spouse. And what if inflation eats up your income and you can't afford the insurance premiums? Your spouse is stuck.

If you have a 401(k), it will pass to your spouse automatically. An IRA goes to whomever you've named on the beneficiary form — for total protection, your spouse.

Next: Social Security, life insurance and your papers >>

Topic Alerts

You can get weekly email alerts on the topics below. Just click “Follow.”

Manage Alerts

Processing

Please wait...

progress bar, please wait

Tell Us WhatYou Think

Please leave your comment below.

Jobs You Might Like

Discounts & Benefits

From companies that meet the high standards of service and quality set by AARP.

UPS Store membership discount aarp benefits

Members save 15% on eligible products/services, 5% on UPS shipping at The UPS Store®.

membership adt

Small business owners save 20% on new installation of any new ADT security system.

Mujer en la parte de afuera de so negocio

Free quotes for members from the AARP® Small Business Insurance Program.

Member Benefits

Renew today! Members receive exclusive member benefits & affect social change.

Rewards for Good

Your Points Balance:

Learn More

Earn points for completing free online activities designed to enrich your life.

Find more ways to earn points

Redeem your points to save on merchandise, travel, and more.

Find more ways to redeem points

Advance your skills. Transform your career.

Explore your learning possibilities.