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Investing for Longevity When There’s a Spousal Age Gap

James · April 12, 2022 · Leave a Comment

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Questions answered: What would change if one spouse predeceased the other? How would your income and portfolio be affected? What are the considerations when planning around one spouse predeceasing the other?

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Key Takeaways:

  • Understanding the math around sustainable withdrawal rates.
    • The 4% Rule:
      • The amount that you can withdraw if you’re assuming your portfolio needs to last for 30 years.
    • The Guardrails Rules:
      • With longer life expectancies and earlier retirements, how can you stretch the 30-year period into a 40-year period?
  • Considerations for a good financial plan, regardless of the spousal age gap.
    • There is always a risk that one spouse predeceases the other.
      • Tax brackets will become condensed.
      • Your deductions will be cut in half.
      • Your income and portfolio could change.
  • Will the surviving spouse be okay?
    • This would depend on their expenses.
      • The portfolio will continue to generate income per month.
      • The surviving spouse would lose their spouse’s social security benefit but collect a survivor benefit.
  • What would change if one spouse predeceased another?
    • Understand what your budget would look like.
      • Consider major changes to expenses such as travel, housing, insurance, food, taxes, etc.
    • Look at your portfolio.
      • It probably won’t change that much.
      • Things that change the portfolio:
        • A life insurance policy.
        • Acute care in a long-term care facility.
        • A trust account.
        • Moving to a new home.
  • What would affect your non-portfolio income?
    • If both spouses collected social security benefits, the surviving spouse collects the higher of the two benefits.
    • Pension survivor benefits, if there are any.
  • The riskiest time is today.
    • If one spouse predeceases the other today, the surviving spouse needs to live off of a limited income for a longer time.
    • What is the most your portfolio could generate under the worst-case scenario?
      • Add the income sources that the surviving spouse could have.
        • If the income sources plus the portfolio do not cover the surviving spouse’s expenses, you’ll need to do some planning.
          • Could you sell a home and downsize?
          • Check episode 91 on varying withdrawal needs in retirement.
          • How would life insurance change your projections?
  • Financial planning software makes it all much easier.

Episode Timeline:

[01:00] Listener question.

[03:30] Understand the math around sustainable withdrawal rates.

[13:56] What would change if one spouse predeceased the other?

[18:56] What would happen to your non-portfolio income?

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