What’s the Plan, Betty and Stan?

Periodically in our blogposts we take the time to remind you that in addition to using the Actuarial Approach to help you develop a reasonable spending budget and keep it on track over time, you can also use it to model deviations from assumed future experience.  As discussed in our post of November 26, 2017, modeling deviations from assumed future experience can be valuable in helping you develop a more robust personal financial plan.  It gives you the opportunity to think about what you would do, for example, if:

• Your equity investments suffer a significant loss, 
• Your spouse dies, 
• Your or your spouses’ health deteriorates rapidly, 
• Your children need money, 
• You lose a source of income, or 
• Your house needs significant repairs
  

The impetus for reminding you to periodically “stress test” your financial plan is a recent article by our friend and fellow actuary, Steve Vernon, entitled, “A retirement planning must-do for married couples.”  The contingency on which Steve focuses is earlier than expected death within the marriage.  In his article Steve cites a recent study by Merrill Lynch and Age Wave indicating, “53% of widows/widowers say they and their spouse did not have a plan in place for what would happen if one of them died.”  In light of this statistic, Steve cautions us to, “Find the courage to take steps now to protect your spouse, while both of you are still alive. Then when the inevitable happens, the surviving spouse can focus on healing the emotional disruption without the added stress of worrying about money. Planning together is a great way to say ‘I love you’.” We agree.

As discussed in our November 26, 2017 post, it is generally a relatively easy process to see how the death of a spouse will affect the financial status of the survivor.  All that is required is to assume that either you or your spouse dies today and rerun the ABC for single retirees (or pre-retirees) with revised data.  Doing this will enable you to see how assets, spending liabilities and spending budgets could be affected by a premature death.  If the resulting spending budget for the surviving spouse is deemed to be insufficient, then the couple needs to decide whether they should buy additional life insurance or take some other action to address the potential insufficiency.

In addition to getting a sense for the financial impact of a premature death within the marriage, couples will want to make sure they have appropriate beneficiary designations and wills in place.  The Merrill Lynch/Age Wave study provides some useful checklists for this purpose.

We also agree with Steve that couples should plan together.  It is important for both members of the marriage to be on roughly the same page in terms of their financial goals, spending budgets, actual spending and actions they might take in the event that future experience deviates from their planning assumptions.