The Impact of a Spouse's Passing

by Paul Ruedi

When people think of threats to their retirement, their minds often run to their investments. But many threats to your retirement will arise from your personal and family life. On our most recent radio show, a listener called in to discuss one of the most difficult: the passing of a spouse.

Beyond the obvious emotional trauma of a spouse passing away, there are often financial implications to a spouse’s passing as well. The first is when the spouse that manages the finances happens to be the one that passes away, leaving the surviving spouse to figure out their financial situation during a time when they are already emotionally distressed. This can often lead to serious financial mistakes and leaves the potential for someone to take advantage of the surviving spouse.

A spouse’s passing also can decrease the income of a household enough to cause problems if the couple is depending on pensions or Social Security for a large portion of their spending. It is very common that the survivor benefit of a pension is only a percentage of the normal benefit and will cut the surviving spouse’s income significantly. The money coming in from Social Security will decrease as well. Though the surviving spouse will receive the higher of the two individual benefit amounts, it will be lower than the combined amount the couple was used to.

Though it is not always the most pleasant thing to think about, it is vitally important to plan for a spouse’s passing, especially if it is the spouse who manages the household finances. That is why the first thing I recommend an aging couple should do is designate a person to keep in the loop on all their finances. This person can then help the surviving spouse manage the transition into an independent life. Though we as advisors often serve this purpose for our clients, a responsible younger family member is also a great option.

Your retirement plan should realistically look at any reductions in income should a spouse pass away and see if the surviving spouse can maintain the same lifestyle. If the reductions in spending would be too much to handle, you may need to address that risk by spending less now to make sure you have enough assets to make up that gap in spending later. You may also consider using some form of life insurance to serve the same purpose. The important thing is that you plan ahead. If you aren’t sure how to do that yourself, you may want to talk to a financial advisor.

Paul Ruedi is the CEO of Ruedi Wealth Management in Champaign, Illinois.