Making sure that you have enough retirement income to pay for your essentials – like housing and food – along with some extra funds for travel, entertainment, and fun – can make for a relaxing lifestyle.
But how long would you or your spouse be able to continue in the same financial position upon the other’s death?
Income replacement is an essential component of a good solid retirement income plan. That is because incoming cash flow could change quickly in the event of an individual’s death. The first step in planning ahead for this is to determine where your retirement income will be generated from, and how it may change going forward.
From Where Will Your Retirement Income Be Generated?
Many retirees receive income from more than just one source. For instance, you and/or your spouse may qualify for a defined benefit pension from a former employer, Social Security retirement benefits, and/or income and dividends from personal savings and investments that you own.
But when one of you dies, how much of this income – if any – will continue?
Pension Income from a Former Employer
Today, few employers offer defined benefit pension plans. But if you and/or your spouse will receive income from a pension, the dollar amount could be reduced, or possibly even eliminated altogether, upon the death of the former worker.
Social Security Retirement Income
Social Security, on average, can replace approximately 42% of an average wage earner’s former pay. So, in many cases, this can make up for a significant portion of your overall household cash flow in retirement.
But if you and your spouse are both receiving benefits, did you know that at least a portion of the total will be reduced upon one of your deaths?
Take, for instance, Jim and Mary. Jim’s monthly Social Security benefit is $2,000. Mary receives spousal retirement benefits from Social Security, which equate to half of her husband’s monthly amount, or $1,000. This provides Jim and Mary with a total household income of $3,000 per month from Social Security.
If one or the other were to pass away, though, only the higher benefit amount would be retained, and the other would cease. Therefore, if Mary were to die first, Jim would retain his $2,000 per month, but he would lose Mary’s $1,000.
Likewise, if Jim passed on before Mary, she would be able to continue living off of Jim’s $2,000 per month, but she would lose her own monthly benefit of $1,000. In either case, the surviving spouse’s income from Social Security would drop by more than 30%.
Cash Flow from Personal Savings and Investments
Income that is generated from personal savings or investments could also change following the death of a spouse – or even if one of you requires medical services and/or long-term care services.
Is Your Spouse’s Retirement Income Protected?
Because no one knows what will happen in the future, it is essential to plan ahead for the “what ifs.” One of the best ways to do so is to discuss your short- and long-term needs with a retirement income specialist.
At Annuity Gator, our primary mission is helping people better understand how retirement income works, along with setting up strategies that coordinate and maximize future incoming cash flow.
If you have any questions, or if you would like more information on ensuring a steady stream of income in retirement, you can contact us at (888) 440-2468 or you can send us an email by going to our secure online contact form. We look forward to helping you create a secure financial future.