Unexpected Threats to a Well-Planned Retirement — Part II

How to Stay On-Track When Unforeseen Challenges Arise

It’s a scary feeling. You’ve planned carefully, saved appropriately, invested thoughtfully and are on track to retire. Then you are met with a significant and unexpected financial challenge. How do you stay on track?

Many families rely on the crucial years before retirement – a time when peak earnings can be socked away to fund retirement and eliminate any remaining debt. What happens when a major life event or financial hardship interrupts your plans?

Following are five unexpected events that can all be made easier by having the framework of a financial plan in place. We’ll look at the potential impact of each, and offer steps to minimize the damage and get back on track to meet your retirement goals.

Last month we looked at Threat #1, this month we look at Threat #2.

Threat No. 2: Death of a Spouse

The loss of companionship just when you are transitioning into retirement is a significant hardship. Beyond the emotional devastation of the unexpected loss, there are also significant financial implications to consider. Now more than ever, you’ll want to lean on your support network and assemble a team of trusted professionals to help navigate the choices ahead.

One option to consider is the role of life insurance in a financial plan. Purchasing life insurance once you’re already retired is likely going to be too expensive to be worthwhile. However, planning ahead for this potential need when you’re younger can provide some cost-effective protection in the event of a worst-case scenario.

Managing the use of Social Security benefits is another way to protect a surviving spouse. Most retirees understand that delaying benefits until age 70 means they will receive a larger monthly payment, but their surviving spouse can also benefit from that increase. When one spouse dies, the survivor generally has the option to continue receiving their current benefit or switch to the same benefit amount the deceased spouse was receiving. Typically the higher-earning spouse would be the one to defer his/her benefits, but it’s important to run the numbers to confirm that. Even if that spouse doesn’t live long enough to benefit from delaying their Social Security (typically to at least age 80), the surviving spouse can continue to benefit from the larger amount.

For those who have a pension, selecting a joint-life benefit is one way to minimize the financial impact of an untimely death. While a joint-life benefit may mean receiving a smaller payment while you’re both alive, it can provide significant peace of mind to know that the surviving spouse will continue to draw pension benefits after a death. Another option is to combine the pension and life insurance – keep the larger single-life benefit, but use the increased payment to purchase life insurance. In that scenario, the couple will receive the larger pension while also acquiring insurance protection. If the spouse without the pension were to die first, the survivor could cancel the insurance and continue receiving the larger pension amount.

Watch for Threat #3 next month…..

©2017 Robert W. Baird & Co. Incorporated. Member NYSE & SIPC. Robert W. Baird 3/2017