Treece Talk Blog

Even the most meticulously planned retirements can be thrown off course by the unexpected loss of a spouse. This emotional blow can be compounded by financial hardship if proper planning for your partner's death hasn't taken place. Honest discussions, grounded expectations, and taking initiative now will put you in the best position for the future.

AARP Reporter Allan Roth advises “I certainly understand that the financial tasks of dealing with the death of a spouse can be overwhelming at a time when you want to grieve. Be forgiving to yourself as this is likely the most difficult time in your life,” 

To prepare, consider these three key financial moves:

1. Develop a Social Security claiming strategy. Deciding when to claim your benefits can significantly impact your future income. The Social Security Administration has easy-to-use tools on their website to help you plan for different scenarios.

2. Choose the right distribution option for your pension. Understand your options for receiving your pension to optimize your financial security.

3. Ensure your financial and estate planning documents are current. Keep essential documents like your will, power of attorney, and beneficiary designations up to date. Make sure they are easily accessible and let your designated loved ones know where to find them when needed.

Social Security benefits after the death of a spouse

According to AARP, “A surviving spouse can collect 100% of the late spouse’s benefit if the survivor has reached full retirement age, but the amount will be lower if the deceased spouse claims benefits before reaching full retirement age.”

You can get spousal benefits as early as age 62, but the monthly amount will be lower than if you wait until your full retirement age (FRA).  Your FRA depends on your year of birth, and it's gradually increasing. Here's a breakdown:

• If you were born in 1957, your FRA is 66 and 6 months.

• If you were born in 1958, your FRA is 66 and 8 months.

• If you were born in 1960 or later, your FRA is 67.

The later you wait to claim spousal benefits the higher the monthly amount you will receive.

What to do with your passing spouse's retirement account?

Unlike other beneficiaries, a surviving spouse inheriting an IRA has the option to treat it just like their own. This means they can consolidate the funds with their existing IRA for simpler management. They also retain the ability to contribute to the IRA based on standard contribution rules. They have the flexibility to designate new beneficiaries for the inherited IRA. According to Debt.org, while there's unrestricted access to the funds, it's crucial to remember that withdrawals made before reaching age 59½ will incur a 10% penalty. Due to the potential penalty, consulting with a financial advisor is recommended to determine the most suitable option for your individual situation.

Another method of inheriting a pension plan is to treat the account as your own. You have the option to name yourself as the account owner, essentially treating it as your own. This means all the standard IRA rules would then apply to you. You'd be able to make contributions to the account, just like you would with your own IRA. You also have the flexibility to withdraw funds at any time and designate new beneficiaries for the inherited IRA. It is important to know that the required minimum distributions (RMDs) begin at age 70½. These RMDs are mandatory withdrawals you must take from the account each year to avoid a 50% penalty on the undistributed amount.

Make sure your financial and estate documents are in order

Ensure a smooth future for yourself and your loved ones by keeping your financial and estate planning documents up to date and organized. This includes making sure your spouse is listed as a beneficiary on your financial accounts and property titles, allowing them to easily manage your assets in a crisis or after you die.

Here are some key documents to keep current and accessible:

• Wills

• Trusts

• Estate plans (if separate from a will)

• Retirement accounts (401(k), IRA)

• Investment documents

• Insurance policies

• Deeds to property

• Vehicle registration and titles

• Lease agreements (if applicable)

• Business ownership documents (if applicable)

• Professional licenses and certifications (if applicable)

Missing or outdated documents can lead to a lengthy and complicated legal process when settling an estate. For expert guidance on estate and tax strategies, consult with a qualified tax advisor, lawyer, and financial professional.

The future can be uncertain, but your retirement shouldn't be 

Team Treece is here to help you plan for a secure future, even if you face debt, disability, divorce, or loss. Schedule a consultation and let's navigate these challenges together.