How do you plan for possibility of early death of a spouse in FIRE

[Koolau]

I hope this isn't a repeat, but I found this site which covers many of the problems of the loss of a spouse, thus causing the single tax payer to experience a "tax bomb."


https://www.thestreet.com/retirement-daily/your-money/the-tax-bomb-called-the-widows-penalty

 

[PatrickA5]

I hope this isn't a repeat, but I found this site which covers many of the problems of the loss of a spouse, thus causing the single tax payer to experience a "tax bomb."


https://www.thestreet.com/retirement-daily/your-money/the-tax-bomb-called-the-widows-penalty

Thanks for this. In calculating my DW's "tax bomb", I completely forgot about the IRMAA implications. Ugh! She's screwed.

 

[LateToFIRE]

I hope this isn't a repeat, but I found this site which covers many of the problems of the loss of a spouse, thus causing the single tax payer to experience a "tax bomb."


https://www.thestreet.com/retirement-daily/your-money/the-tax-bomb-called-the-widows-penalty

Thanks - not a repeat for me. Looks very informative.

 

[LateToFIRE]

What I probably did wrong...


What I hope I did right...

Thanks - I like the "what I did wrong" vs "what I did right" format. You've been at this awhile, so lots of great observations to draw on.

I'm still "young" (i.e. 60's), but can see I've made some of the same mistakes, for which I'll have to pay to correct, specifically:

(1) Maxing out 401k/tIRA's during all my working life. At least we did backdoor some Roth for DW and those funds could grow to something sizable over time. Also, I do see the value in doing some conversions next few years in our narrow window of oppty.

(2) Wish I'd bought a bit more whole life, for both me and DW, back when we were insurable. It's not bad stuff and fairly tax-efficient as you noted.

But, all in all, our problems are the "good" kind of problems, so no complaints. Well except for NIIT - that tax just really makes me hostile, like really really hostile.

 

[brett]

We have an established financial plan that is well recorded and available to the surviving spouse.

The other part of our plan is ensuring that our respective wills updated periodically vs do it once and forget about it.

Ditto for tax planning. We have arranged our finances based on the advice and direction of a professional tax accountant.

I have never understood the reluctance of some to engage professional legal and accounting advice.

Of course there is a fee. Our focus has never been on the fee. It has always been on the benefit.

I don't know what I don't know and I want to find out before it is too late to do anything about it.

 

[Romer]

I hope this isn't a repeat, but I found this site which covers many of the problems of the loss of a spouse, thus causing the single tax payer to experience a "tax bomb."


https://www.thestreet.com/retirement-daily/your-money/the-tax-bomb-called-the-widows-penalty

Good article. Exactly why I have been doing Roth Conversions.

 

[pb4uski]

Thanks for this. In calculating my DW's "tax bomb", I completely forgot about the IRMAA implications. Ugh! She's screwed.

Yeah. My mom was when my Dad passed. IRMAA for the rest of her life. Better than the alternative though.

 

[PatrickA5]

Yeah. My mom was when my Dad passed. IRMAA for the rest of her life. Better than the alternative though.

I don't think I could ever do enough conversions to get her below IRMAA for a single person. But, like you say, paying IRMAA means you're not broke.

 

[ncbill]

Did she look at the county probate court to see if anyone filed the will there for safekeeping? It is a fairly common practice.

-gauss

no, the lawyer retired, no retention service.

assuming the bank keeps dragging its feet she will open probate intestate then convert to a testate proceeding when the will is located.

probably won't matter since hubby solely owned the business which was insolvent when he died...her name isn't on anything, so no liability for her there.

homes here are automatically titled tenancy by the entirety for married couples so that will pass to her outside of probate.

 

[tbis]

DW is 8 1/2 years older than me. Technically, she has less to worry about, but I have a term life insurance policy on me until age 65 or thereabouts. I figure it fills some of the gap of what would have been my "working years".

 

[KarenF]

I do trust my kids and they have access to everything now. If one of us was to pass away, the other one would have to live on the remaining Pension/SS/Investments. It will be fine. We did both sign up for the other to receive 55% of our pension if we pass away. The large RMDs are going to happen anyway...

 

[yclipse]

I would only offer one comment. This struck me:

> that's about a $1.3M loss of benefits

When the household shrinks from two to one, there is a corresponding loss of need.

 

[LateToFIRE]

I would only offer one comment. This struck me:

> that's about a $1.3M loss of benefits

When the household shrinks from two to one, there is a corresponding loss of need.

Yeh, I'm picking up on that, though I wouldn't want either of us to be forced into making big downsizing decisions.

 

[W2R]

Frank and I are not married, and we don't share our money, but we have been together and devoted to one another for 23-24 years.

As for planning for his early death, well, I don't. How macabre. His death would be totally devastating and I'm not sure I would or could carry on afterwards.

 

[youbet]

Interesting thread. I cranked the handle and accounted for pension survivor levels, loss of my SS, higher taxes, etc. and assumed non-tax expenses would stay the same. All in, if I predecease DW, her WR would be approximately 1.0%. While I'm alive our WR is 0.46%. I think things are covered OK.

 

[pb4uski]

+1 our WR isn't that low but is still much lower than 3%.

Actually now that I think of it if I kick the only thing DW will miss is her SS... she'll get an amount equal to my SS plus my joint life pension plus income from our investments (she is my sole heir if I predecease her). Her drop in income will only be ~13%. Of course, her taxes will be higher. She'll still be living very well.

 

[ivinsfan]

Frank and I are not married, and we don't share our money, but we have been together and devoted to one another for 23-24 years.

As for planning for his early death, well, I don't. How macabre. His death would be totally devastating and I'm not sure I would or could carry on afterwards.

I dunno if it's macabre, but it's definitely somethings couples need to think about when they share homes and money. I certainly hope the two of you enjoy each others company for many years into the future.

 

[ivinsfan]

I would only offer one comment. This struck me:

> that's about a $1.3M loss of benefits

When the household shrinks from two to one, there is a corresponding loss of need.

Depends doesn't it. Medical expense would definitely drop. Perhaps you might sell one car and save there. However IMO many expenses would not go down and taxes will definitely go up.

 

[RetiredHappy]

If my husband predeceases me the drop in income is only 11%, losing the lower of the 2 SS checks. On the other hand, if I die first, the drop in his income is 23%. Either way, it is manageable and expenses will drop tremendously as travel expenses will mostly be eliminated.

 

[ivinsfan]

If my husband predeceases me the drop in income is only 11%, losing the lower of the 2 SS checks. On the other hand, if I die first, the drop in his income is 23%. Either way, it is manageable and expenses will drop tremendously as travel expenses will mostly be eliminated.

Are you certain that the surviving spouse won't wish to travel? That depends on a lot of things doesn't it? Now if a couple it looking at how much they could spend as a single, it's fine to say, well I can cut travel.

 

[NanoSour]

I spent a lot of time thinking about this over the past year and have settled on this as our plan.


1) All our monthly bills are paid automatically from our checking account via ACH.



2) I was a 3-Fund investor for years which included me handling tax-loss harvesting and rebalancing duties. Last year I decided that one fund would handle 99.9% of what I was trying to accomplished so I consolidated all accounts to the one fund. This makes it very easy for the surviving spouse as there is no decision to be made about which investments to choose.



3) I set up an automatic monthly withdrawal from our Joint Brokerage account to our checking account which continues until stopped. Therefore, should something happen to me the "paycheck" will just continue and bills will be paid. Financially, nothing will change if I'm not here for whatever reason.



4) I've written all this down and explained it to my DW to the point that she could explain it to stranger. That's the best I can do and the rest will be up to her and our 3 adult children to figure out.

 

[Finance Dave]

Good article. Exactly why I have been doing Roth Conversions.

+1

Our spending needs are not in the $ range that will trigger things like NIIT and IRMAA, but we do need to focus on minimizing taxes.

Like Koolau, I saved too much in 401k accounts and not enough in non-taxable. I think we're in a LITTLE better shape due to some Roth conversions, but I plan to do more over the next 3-4 years.

 

[DrRoy]

If I want first, DW would lose my pension. However, it is only about 23% of our current spending, so she would have sufficient income. Our significant travel spending would go down considerably.

 

[RetiredHappy]

Are you certain that the surviving spouse won't wish to travel? That depends on a lot of things doesn't it? Now if a couple it looking at how much they could spend as a single, it's fine to say, well I can cut travel.

We pay about $15K in timeshare maintenance fees, add that to expensive golf rounds while traveling, maybe once a year air tickets etc, so about $30K. My husband relies on me to do all travel planning and he has no patience to understand how to maximize timeshare value. I make reservations, I book air tickets, I research golf courses and book tee times and manage our calendar. He has become 100% dependent on me on financial and logistical stuff. He doesn't even want to make a RMD withdrawal from cash in his account without me confirming/checking on each step that he is doing. I manage our cash flow and pay all bills. I am pretty sure neither of us will travel much once either of us passes.

 

[ivinsfan]

We pay about $15K in timeshare maintenance fees, add that to expensive golf rounds while traveling, maybe once a year air tickets etc, so about $30K. My husband relies on me to do all travel planning and he has no patience to understand how to maximize timeshare value. I make reservations, I book air tickets, I research golf courses and book tee times and manage our calendar. He has become 100% dependent on me. He doesn't even want to make a RMD withdrawal from cash in his account without me confirming/checking on each step that he is doing. I am pretty sure neither of us will travel much once either of us passes.

Well those maintenance fees won't disappear...and if you don't golf as much maybe you will take up a different hobby with some friends...my comment was maybe some couples want to leave travel costs in their budgets even for a single.