E.A.S.E. into Retirement Podcast

with Tom Mosley.  
Financial Issues of a Surviving Spouse

Click on the video to watch the podcast. Full transcript is included below.

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Speaker 1:

Financial issues of a surviving spouse. There are some very dramatic things that you need to realize if you are married, that if you have lost a spouse, first of all, let me tell you my heart goes out to you, because that’s a very traumatic thing, and hopefully you have a support system around you to help you through that. Hopefully you’ve made some plans before the time, and if you’re watching this and you say, “Well, there’s some days I’d like to be a surviving spouse, but unfortunately I still have my spouse,” there’s still time. That’s a joke by the way. There’s still time for you to make some decisions and to be ready for the time when you … 92% of the time a surviving spouse in a marriage has to live for at least one year without a partner. So that’s a big percentage chance that one of you is going to live as a surviving spouse.

Now, the purpose of this YouTube today is to show you some things that I’ve seen in 28 plus years of being in this industry and working with people to make sure that they never run out of income the rest of their life, and that they pay as little as they’re legally required to pay in taxes. Both of those areas could be impacted according to the plan that you have made if you ever find yourself in a situation where you’re a surviving spouse. So let’s just jump right in.

The number one thing that you need to deal with, and I can’t go by without addressing this. There are some tremendous emotional issues when you find yourself as a surviving spouse that you’re going to have to deal with. Number one, you’re going to be, when it comes to not just financial decisions, but decisions around the house and decisions as to where you live and decisions as to where you stay and decisions as to what you do decision making, you’re going to be on your own.

Now, many people say, “Well, that’s fine. I’m single. I’ve been on my own forever.” That’s good. But most married couples, at least, even if one is the leader in making most of the decisions, there’s still a give and take in decision making. If you’ve leaned on someone to make a lot of the decisions financially or other ways, then you’re on your own. You’re pretty much going to have to either be on your own or replace that decision making partner or decision making ally with someone from your family. Be careful for that. Make sure that that family member’s not trying to take advantage of you and make sure they don’t see the assets that you have as their assets. Okay, make sure that you do that.

Now, let me go back. I clicked it a little forward. There’s also going to be some social changes. There’s more than just money, and that’s why I put this number one up here. You’re going to have to make decisions on your own and you’re also, you’re going to find socially that whereas you’ve always been accepted places as a couple, you’re going to have to be accepted places as an individual. And sometimes they don’t always match up, or you go back to those places, and it might not be the people who are there, but it might be just internally with you; you see yourself now as a single person. So emotionally, it’s going to be hard for you to deal with going to the same places that you went to as a couple when you’re going to them now as an individual. And again, I tell you these things because they’re not necessarily directly financial issues, but when you are a surviving spouse, you’ll understand.

I’ve walked through literally with hundreds of people who are classified as the surviving spouse and they face issues like this. Now, when it comes to some of the financial issues, the biggest thing I would see is many times you have a reduction in income. Now, if one of you is still working, many, many people find themselves in need even though they’re 55 or 60 and life insurance is a little more expensive, and you say, “Well, the kids are out of the house and X, Y, Z has happened.” But if you’re still planning on working another five or six years, you probably need to purchase the most inexpensive life insurance you can get. And that is probably even as low as a 10 year level term, lowest expense you can get if you’re healthy enough to qualify. And what that will do for your spouse, and if you’re already a surviving spouse, this won’t help you, but what that would do for a surviving spouse is if you pass away and say you’re making 125 or $150,000 a year and you’re going to work for five more years, that’s a $750,000 financial loss to the potential plan of the family.

So tacking on a little inexpensive life insurance could keep the surviving spouse from being without, or as I’ve seen it, and I’m getting back to the social aspect of it. Sometimes it forces the surviving spouse to look for another surviving spouse and then they remarry. And sometimes that doesn’t work out very well because, in love I say this, they’re marrying a wallet rather than marrying somebody that they’re really in love with. So make sure that if something happens to you and you have income that the family’s counting on, that that income is insured and the surviving spouse potential doesn’t have a reduction in income.

Now, let’s say you’re both retired and you’re both getting social security. The good news is the one who has the largest social security is called the breadwinner. The bad news is the one who has the lowest social security, regardless of which one passes away, the breadwinner stays and the lower social security goes away. A lot of people say, “Well, things will cost half as much.” Your mortgage company has a deal with you like that, I want in on it because I don’t know about it. Your gas pump has a deal like that, so when you go to pay for gasoline, you can push a button and say, “I’m a surviving spouse, I only pay half of the price.” No. The reality is a surviving spouse has about 82 to 85% of the cost on average of the couple when they were still there. So it’s really important that you understand that there’s going to be a loss of social security benefit. If both of you are drawing social security, the lower will go away. So plan on it. Mohammad Ali said it was always the punch I didn’t expect that knocked me out. Don’t let this punch knock you out as you’re planning as a couple for the time when there will only be one. Okay?

So here we go. Your tax status will change. This is a really big deal. Let’s say both of you have a half million dollars in an IRA and one of you passes away. Well, you inherit the deceased spouse IRA, so you now have $1 million and you still have required minimum distributions once you reach the age of 73 that you’re going to have to take out. Well, in the year that your spouse passes away, you’re going to file married filing jointly that next April, but the following year, you’re going to file as a single tax filer. So your brackets are going to be cut in half.

Now, let me just show you what I’m talking about. Instead of going into the 22% tax bracket at around $90,000, when you’re filing as a single tax filer, you go into the 22% tax bracket at $45,000. So it’s a big difference. All the brackets cut in half. Make sure that you’ve worked with this. This is one great reason to do tax harvesting, to get those IRAs, those 401ks and all that money that’s never been taxed. It’s great that it was deferred and you didn’t have to pay the tax on it when you were accumulating it, but now when you’re single, you’ve got all of those IRAs that you’ve got to take money out of, and you’re doing it at half the tax bracket that you were in when you were married, filing jointly. Just know that that’s there.

Estate planning issues, if you have a trust, it’s really important that you alter that trust and you go back to the attorney and see what might need to be altered in case you want to update your successor trustee, because now it’s from you to them. You want to make sure that everything and all the provisions are in there. And because when you leave to your children an estate that’s thrown all over the place and not pulled together in a trust or in a good financial plan, then you are leaving them, and if you’ve ever been in this situation you know exactly what I’m talking about, you’re leaving them a big headache. So you need to address after things settle down at the losing of the spouse, you need to address your estate planning situation.

Another thing is you need to address long-term care concerns because many couples say, “Well, as long as I’m here, I’ll take care of her.” “As long as I’m here, I’ll take care of him.” Well, in a surviving spouse situation, there’s nobody there in the home to take care of you. So the question is, will your kids take care of you or do you need to address that with some kind of long-term care provision? Look on our YouTube, you’ll find another episode where we’ve actually talked about long-term care. So these are just a few. I actually began to compile a list and I stopped at about 15 different things, and these are what I considered the top six that I run into and I have run into over the 28 years of working with people in retirement.

Look, we want to help you get through retirement. We want to make sure you have sufficient income for the rest of your life that’s increasing. And we want to make sure that you pay as little as you’re legally required to pay in taxes. And as you can see from the six things we’ve looked at on this YouTube, there are a lot of things that are going to impact you when you become a surviving spouse. So you ask yourself the question, do I need financial issues? Do I need to address those for when I’m a surviving spouse? Then go to us, go to info@mosleywealthmanagement, M-O-S-L-E-Y, wealthmanagement.com, or call us at (714) 421-4288 and we’ll help you in any and every way we can.

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