Did you know there’s actually a disadvantage of having too much Social Security?
I was recently working with new clients who I’ll call Rick and Patty. They had continued to work and save into their late 60s and planned to activate each of their Social Security benefits at age 70. Because they both had a substantial working record, their combined Social Security’s would be well over $80,000 per year.
What that meant, however, is that if one spouse passed away, the surviving spouse’s income would be cut in half to only $40,000. That would require the surviving spouse to withdrawal much more money from their IRA accounts each year, and run the risk of running out of money more quickly.
Fortunately we were able to stress test the premature death of a spouse and its impact before retirement to determine whether or not a continued need for life insurance was warranted.
In their particular case, they were already paying for a term policy on each of them that totaled nearly $950 dollars per month. We were able to find a permanent life insurance replacement for just a little bit more in order to ensure that the surviving spouse would be taken care of in the event of a premature death.
What was even better is that they are able to use the death benefit during their lifetime if they need to cover long term care expenses!
Fortunately we were also able to find several cost-saving mechanisms that help them cover the additional life insurance expense such as having the younger spouse file a restricted application which netted them over $30,000 of additional benefits they weren’t expecting the first two years. In addition, I was able to show them how to do their charitable giving directly out of their IRA account rather than their regular cash flow in order to save additional tax dollars.
The result is that we were able to successfully stress test a circumstance in which they both lived a long time AND one in which one spouse passed away prematurely.
Don’t forget that your surviving spouse will have to live on less Social Security income if you pass away.
Have you ever looked at whether or not your surviving spouse will have enough income if that happens?