Making Sure the Surviving Spouse has Income

The National Association of Personal Financial Advisors was recently polled determine common surprises encountered by their clients planning for retirement. A Chicago Tribune article highlighted one of the most common responses from those advisors:  a failure to set aside significant income for a surviving spouse.

It is one thing to examine how long an individual is expected to live, subtract that from their current age, and determine how much is needed each of those years. By no means is this an exact science, but it is somewhat intuitive to roughly understand how much a single individual needs to retire. Things get more confusing, however, when spouses get thrown into the mix. As one planner interviewed for the article noted, "One thing people don't plan for is the reduction of income if a spouse or partner dies."

Think about Social Security. When two partners are alive, each may receive Social Security benefits. However, if one of the spouses dies, his or her income will disappear. Even taking into account a larger benefit for the surviving spouse, the overall family income will be lower than before. Similar problems can arise for those living off a pension. A spouse's death may cause the pension income to dry up. If not accounted for, this can thrown some seniors into a financial tailspin. One professional interviewed for the Chicago Tribune story told of a recent client whose retirement income dropped 35% following her husband's passing, but who found only a 10% decrease in expenses. This ultimately required a significant lifestyle change for the woman at the very moment when she craved stability following the loss.

Various tactics can be used to minimize the long-term consequences and provide more stability no matter what the future holds. For instance, a higher-earning spouse may choose to refrain from taking Social Security. This may earn him or her "delayed credits" up to 8% a year until the age of 70. If that spouse passes on, the surviving spouse may be able to switch to the value of the other's benefit, including delayed credits and cost-of-living adjustments. For pensions, a "joint and survivor annuity" might be appropriate, where less is paid out monthly for the peace of mind of knowing that income will continue even if the pensioner dies first.

Federal Bill to Prevent Senior Abuse Advances in Senate

Over the past two years there has been increased focus on the scourge of elder abuse of all kinds.  Yet, the awareness effort has not led to any federal legal changes to help protect seniors from things like physical neglect at home or senior financial exploitation.  That may soon change.

Minnesota Democrat Sen. Amy Klobuchar and Texas Republican Sen. John Cornyn have sponsored a bill in the U.S. Senate to help prevent these harms recently advanced out of the Senate Judiciary Committee.  The bill passed out of committee on a 15-3 vote this month and will now be sent to the full Senate for approval.

Known as the Guardian Accountability and Senior Protection Act, the measure strengthens the tools available to states to provide proper oversight of guardians and senior conservators.  This focus on oversight is critical, as a lack of third-party monitoring often allows the problem to go unnoticed.  Considering the obvious need for improvement, the measure is supported by those on both sides of the aisle.

Advancement of the bill and increased focus on senior caregiving could not come at a better time, because the senior population continues to rise each and every day.  Failure to account for the issue now means that millions might be affected in coming years.  To address the problem, the measure allows states to use existing money to improve monitoring systems and creates an electronic filing system to monitor guardians and conservatorship audits.

As Sen. Klobuchar noted during committee hearings, "I know every state has incidences of people getting ripped off millions of dollars when their loved one is supposed to be under the care of a guardian. Most guardians do amazing work, good work, but again you have a situation where you have a few that are causing a lot of harm."

Are You Spending More Time Planning Your Vacation Than Your Estate Plan?

This weekend Lake County News published an interesting story noting how many community members spend more time planning their summer vacation than their inheritance and long-term issues. Think about it: how many different contingencies are accounted for when heading away from home for a one to two week trip? Pet sitters are hired, mail is paused, email auto-responders are set-up, plants are moved inside and friends are asked to water them, doors are locked, and a spare key is left in case of emergency. We take these steps just in case, so that we can enjoy our time away with the peace of mind that everything back home can be dealt with in most situations.

In many ways estate planning involves similar forethought--understanding possible issues down the road and taking steps to account for those contingencies. Yet, vacation planning is done instinctively, while estate plans are often delayed or ignore due to either procrastination or apprehension of one's mortality.  It is easy to procrastinate on these sorts of issues without immediate compulsion. Summer vacation planning has to be done by a known date. Estate planning is not that easy, because no one knows for sure how much time they have or if they may need long-term care. The indefinite future makes it easier to procrastinate. Yet, planning is vastly more effective when conducted before emergency necessitates it. You will also get the peace of mind that comes with knowing inheritance and plans are in place.

Many also put off the planning because they assume that the planning is complex and time-consuming. Planning will be done when they finally "have time" for it. There will likely never be a time when you want to do your estate plan; instead one simply has to make time to do things that matter. But beyond that, the planning itself does not necessarily have to be as complex or time-consuming as one imagines. After all, the whole point of having professional help with these issues is to hand of the work to those who deal with these matters day in and day out. In most cases, a legal professional will explain how a trust or will can be created and how to put other documents into place, including a Power of Attorney and Health Care Proxy. Even if nothing more complex is required, having these few pieces in place can make all the difference in case something happens unexpectedly.