A Tip to Avoid the 2nd Financial Cliff in Retirement

A Tip to Avoid the 2nd Financial Cliff in Retirement

Everyone will face at least one financial cliff when retiring, going from a regular paycheck to Social Security and Savings.  Hopefully this step down will not be more than a 20% clip, but for many it can be as much as a 60% decrease in income.

These reductions of retirement income are the cliffs which should be planned for and negotiated.

I hike regularly in the mountains behind my home, there are large patches of scrub oak which are difficult if not impossible to pass.  If time is taken before my hike I can plan out my trail with certain markers and make the critical turns as to not trap myself in an undesirable situation too near a cliff.

What many married couples don't realize is the 2nd Financial Cliff occurs when a spouse passes.  Let me Illustrate.

Below is a  hypothetical Income situation for a couple retiring at age 66

Husband has Pension Income annually:      $36,000 

Husband has Social Security annually         $20,000 

Wife has Social Security income annually   $10,000

Total Annual Couple Retirement Income    $66,000

The $66,000 of income could in most cases provide a good retirement.  Savings, 401K money, and investments could then be used for the fun things.

Let's Assume the Husband passes at age 75.  What would be the income for the surviving spouse?

Husbands Pension is now 50%                  $18,000

Wife now get husbands Social Security      $20,000   (she loses her SS)

Total annual Widow Income                      $38,000

Total Loss of Income                               ($28,000)

For the surviving spouse this large drop in income is almost a 2nd death.  She loses over $2,000 per month with the passing of her loved one.  When is the best time to have a large drop of income?  Not now, not ever.  What is the solution? Planning ahead to avoid the cliff, see below.

Assuming this couple had 401K, Investments and or Savings money.  Had they placed $200,000 into an income annuity at age 60 her situation would be dramatically different.

New Income Scenario Assuming an Annuity purchased at age 60 and husband passing at age 75

Husbands Pension is now 50%                 $18,000

Wife now gets husbands Social Security   $20,000      (she loses her SS)

Income Annuity payment for her lifetime    $31,646     Guaranteed for the rest of her life 

Total  annual Widow Income                    $70,646  

Total Gain of Income with passing             $ 4,646 +  

A similar solution is available at regular retirement age by planning ahead with a good income annuity.  At regular retirement age you would get guaranteed retirement income for both lives and continual income when one partner passes.

The insurance industry has are some very attractive "income producing" products, with lifetime payment guarantee's, guarantee return of premiums and interest if both parties pass early, income continues even if the account value goes to zero in case of longevity. 

Not all annuities are created equal, please get competent advice.

If you want to secure a safe income passage as you approach these retirement cliffs, Please contact me for no pressure guidance.  All my consultations are free and are no-pressure and completely confidential; even the ones where I recommend you not to do business with me.

Warmest regards,

Cory Payne

Beehive Insurance Retirement Planning Services

cpayne@beehiveinsurance.com

801-685-6860