July 2017

Considerations for Retiring Couples

Retirement is another chapter in your life; one that requires not only planning but day-to-day maintenance once you get there. And if you have a partner in life, it’s important to remember that your retirement, like a tandem bike, is built for two.

Planning for your own retirement is complicated enough, but doing so at the same time as your spouse can be daunting, with additional details to consider.

For starters, you and your spouse may have two completely different sets of needs in retirement.1 One may have health problems requiring expensive medications and frequent visits to the doctor. The other may live 20 years or more after the first spouse dies. Two people. Two different income needs.

When most people plan for retirement, they figure out how much household income they need. Their income sources may include two Social Security checks, a pension or other employer-sponsored plan, and withdrawals from personal savings accounts. But have you thought about how much income would be lost when one spouse passes away?

In some cases, the household income may go down to one Social Security check, less pension income and reduced personal savings once lingering medical bills and funeral expenses have been paid. In this situation, it’s helpful to know that a surviving spouse may be eligible for a lump sum death payment of $255 from Social Security to help pay for funeral or burial costs.2

Married couples frequently enjoy savings from shared costs by living in one house with one set of utility and cable bills. However, when one spouse passes away, those costs usually remain static; it’s not as if they’re reduced by half because only one spouse lives there going forward.

Consider this situation and ask yourself — will the surviving spouse need less money to maintain the household? In many cases, that person will likely need more money to hire someone to do some of the chores previously handled by the deceased spouse. Will the survivor have lower medical bills? Not likely if he or she lives into their 90s or beyond. What about housing? Will there be enough money should the survivor need living assistance or full-time nursing care down the road?

With all these questions to consider, it may be worth exploring various ways to help protect a surviving spouse’s financial situation, such as buying life insurance and/or working with a qualified attorney to establish a trust. Please keep us in mind if you and your spouse could use some help planning for retirement income. As an independent financial services firm, we help people create retirement strategies using a variety of insurance products custom suited to their needs and objectives.

Content prepared by Kara Stefan Communications
1 Jeff Brown. U.S. News & World Report. May 17, 2017. “Investing Advice for May-December Marriages.” http://money.usnews.com/investing/articles/2017-05-17/investing-advice-for-may-december-marriages. Accessed May 26, 2017.
2 Wesley E. Wright, Molly Dear Abshire. Laredo Morning Times. May 18, 2017. “Elder law: Social Security – Many fail to apply for death benefit.” http://www.lmtonline.com/news/article/Elder-law-Social-Security-Many-fail-to-apply-11156931.php. Accessed May 26, 2017.
3 Jamie Hopkins. Forbes. April 27, 2017. “Why Life Insurance Is Essential for Retirement Planning.” https://www.forbes.com/sites/jamiehopkins/2017/04/27/why-life-insurance-is-essential-for-retirement-planning/#4b15989b31cd. Accessed May 26, 2017.

Legacy Planning: Inherited IRAs

Non-Spouse IRA Beneficiary Rules

The tax implications regarding what a child or other non-spouse beneficiary does with an inherited IRA can be complicated. Here is a brief look at just a few of the tax implications when a non-spouse inherits an IRA.1

  • You must take required minimum distributions (RMDs) on the IRA; if you don’t, you can face a 50 percent penalty from the IRS.
  • You can withdraw money from the account at any age without an early distribution penalty, even before age 59 ½. If it is a traditional IRA, you will usually have to pay income tax on the entire amount withdrawn.
  • Because a Roth IRA is funded with nondeductible contributions, no taxes are owed on either original contributions or gains if the owner held it for at least five years.
  • If the deceased owner passed away before starting RMDs, you can wait to take distributions, but you must withdraw all the funds by Dec. 31 of the fifth year of the owner’s death.
  • No matter when the original owner died, you can take the RMDs over your life expectancy beginning with the year following the account owner’s death.

If you need help deciding what to do with an inherited IRA, give us a call. Neither the firm nor its agents or representatives may give tax advice. We can partner with tax professionals who can help ensure you make the appropriate decision for your situation.

1Barbara E. Weltman. Investopedia. March 23, 2017. “The Rules on RMDs for IRA Beneficiaries.” http://www.investopedia.com/articles/personal-finance/102815/rules-rmds-ira-beneficiaries.asp. Accessed May 23, 2017.

Spousal IRA Rules

When a spouse inherits an IRA, he or she has all of the same options as a non-spouse beneficiary, along with some other choices.1

For example, if a wife is the sole beneficiary, she also has the option to “treat it as her own.” The surviving spouse will need to either transfer assets to her own existing IRA or open a new one in her name. After rolling or transforming the inherited funds into her own IRA, she may take withdrawals at any time but will be subject to the 10 percent penalty for withdrawals made before she turns age 59½. She also is responsible for any taxes owed on withdrawals.2

This hypothetical example is for illustrative purposes only. This information is not intended to provide tax, legal or investment advice. Be sure to speak with qualified professionals about your unique situation.
1Barbara E. Weltman. Investopedia. March 23, 2017. “The Rules on RMDs for IRA Beneficiaries.” http://www.investopedia.com/articles/personal-finance/102815/rules-rmds-ira-beneficiaries.asp. Accessed May 23, 2017.
2Ibid.
Life insurance policies are contracts between you and an insurance company. Life insurance product guarantees rely on the financial strength and claims-paying ability of the issuing insurer.
This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice. We are able to provide you with information but not guidance or advice related to Social Security benefits. Our firm is not affiliated with the Social Security Administration or any governmental agency.
The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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