While of course, couples want to plan happy healthy active to at least 95 (and that is how most financial plans are run), the reality is, very rarely do both parties in a relationship live the same length of time. The average life expectancy today is around 82, but there is a 50% chance one of you will live to 92. The fastest-growing demographic in Canada according to the 2016 census are centenarians, and for every 1 male over the age of 100 there are 5 females. On average, a baby boomer woman can expect to outlive her spouse by 10 to 15 years with significant financial impact. That fact calls for planning. And it appears couples are willing to talk about it.
Recent investor research conducted by the Investments & Wealth Institute and Absolute Engagement found that almost 30% of investors surveyed wanted to know more from their advisor about “ensuring my partner/spouse is taken care of should I pass away first”. Given the dramatic impact losing a spouse has on a survivor’s financial well-being, this is a legitimate concern. In my opinion, becoming single again, especially near to or early in retirement, is the greatest risk married couples face. You see, without proper planning, a survivor faces a significant decline in income: loss of a portion of a Defined Benefit Pension Plan, loss of one Old Age Security (OAS) payment, the possible loss of part or all of your spouse’s CPP. Plus you lose the ability to pension income split. In retirement, a single person, for the same level of household income, pays more tax. And it puts your own OAS at risk of being clawed back. This combination of financial hits means a widow’s income drops an average of 40%. But it doesn’t have to be this way. Proper planning can mean the difference between a surviving spouse experiencing hardship or being okay financially. If you are concerned about the survivor being okay, here are three things you can do to:
- Run a survivor scenario, for both partners – If an accident had happened yesterday, what would the survivor’s retirement finances look like. Is it enough? If it isn’t, what are the options? Selling your home? Do you have the right insurance? Which accounts should we draw from to create the best outcome once one partner passes away? Especially in the event where one spouse has a defined benefit pension and the other doesn’t, it is possible that the financial impact would be greater on one spouse if they are the ones who live longer than the other. The point of these scenarios is to identify and quantify the risk, discuss whether to take that risk and identify possible strategies to offset the risk.
- Make sure your will and beneficiaries are current – You don’t know what you don’t know, and sometimes it is possible to have unintended outcomes. Review your will. Review it together, with a legal or estate professional to make sure that what you intend to have happen is what actually would happen with your estate. Particularly with blended families, where there are marriage contracts, or where beneficiaries are named directly on assets, like insurance or investment accounts, confirm that everything would go where you want it to go. Not only that, make sure you understand where any tax liabilities will be paid from. It is entirely possible, depending on how your affairs are set up, that taxes would come out of some beneficiary’s share of your estate but not out of others. Is this your intent?
- Make sure you both know and have access to the household finances – one of the most emotionally difficult experiences someone can have in life, is the loss of spouse. We don’t want to add financial stress on top of it all. Steps 1 and 2 go a long way to helping. But taking on the entire financial affairs of the household can be overwhelming, particularly if you haven’t been involved in it before, and/or if you don’t know where accounts are or have access to them. Make sure both of you are informed as to the household finances, are part of the planning and investing conversations, and make sure you have or would have access to them.
One of the objectives of PlanSingle.com is to help women achieve a lifetime of financial independence, regardless of their marital status today or how that may change in the future. As we said in the book, “We are not advocating that those of you who are married or in a committed relationship should plan your finances excluding or independent of your partner. Rather, planning for the day you may be single also includes planning for each other, to ensure that, if something should happen to one of you, the other will be okay. And isn’t that what we want for those we love?”