Widows are more likely than widowers to fall victim to poverty during retirement. The reason behind this is that most retirees want to get the highest payment as they enter retirement. However, if you die before your spouse does, it is highly likely that your partner will see a substantial reduction in income.
Simply put, there are a few key personal finance decisions that you and your spouse should carefully weigh and discuss together in order to ensure that both of you are in a good position, financially speaking, when one partner dies ahead of the other.
Lump sum vs. monthly checks
Upon retirement, you will have to make a choice between a lump sum of your retirement plan or monthly checks. One advantage of getting the lump sum is that you can reinvest this. However, be aware that if the market performs too poorly or if you withdraw too quickly, you won’t get good returns on your investment.
On the converse side of the coin, if you choose to get monthly checks instead, you and your spouse will be guaranteed a fixed income.
Whatever option you choose, you and your partner should make sure that you have enough money to cover your monthly living expenses. One way to ensure that you have a fixed income is to put your money into an IRA and then use the money, or part of it, to invest in an immediate fixed annuity.
If you are planning to get monthly checks instead of a lump sum, the next thing that you and your spouse need to decide is how big the checks you will get will be, and for how long.
If you want the amount of the checks to remain the same even after you or your spouse dies, you will have to reduce the amount of payment you receive monthly instead of choosing a single-life payout which stops when you die, or a joint-and-survivor payout where the amount of the checks will be halved when one spouse dies.
If you are the higher earner, it would be good practice to hold off claiming your Social Security as long as you possibly can. This move is particularly beneficial if your partner did not work or did not earn enough to merit a significant benefit. Each year you delay can add an additional eight percent per year to the benefits until you reach 70 years old.