The financial plight of the surviving spouse.
Take me with you when you go, girl
Take me anywhere you go
I’ve got nothin’ here but me, babe
Take me with you when you go
– Jack White
Over my nearly 30 years of financial planning, death in a client family has given me both agonizingly poignant moments but also moments of tremendous encouragement for the human condition.
I have had the pleasure of working with bereaved spouses in circumstances that let them stay in the family home and give their families the support and foundation they so desperately need. Unfortunately, I have also experienced achingly sad times when I have had to tell other spouses how their worsened financial future will unfold due to their altered circumstances.
I was reminded of the dramatic financial impact of death on the remaining spouse when a widowed referral came to me for a second opinion. To her credit, she and her husband had done many things right. Planned. Saved. Invested. Everything they thought they needed to do in their accumulation years. The only problem was it was too superficial and failed to address an inescapable truth: a husband and wife almost never die at the same time.
In the first hour of my review I knew where this story would go. The household gross income around which they had planned their life was going to be cut by nearly 40%, while the impact of income tax actually increased – the loss of income splitting is an extremely bitter pill. Obviously, this created an entirely different lifestyle outlook.
The usual suspects were at play: As the surviving spouse, she would only be entitled to 60% of her husband’s company pension. His Old Age Security would be lost. But what surprised her most was the fact that she would only receive a small fraction of his CPP because the government caps the amount of CPP you can receive. She also lost her own Old Age Security – the combined income, losing access to income splitting and the aggregation of their combined RRIF led to a significant claw back of her own Old Age Security. It was a painful review for both of us.
She left my office crushed for the second time in as many years.
Don’t get me wrong, this couple did many things right during their accumulation years. The problem, and it is an epidemic problem, is that they had not properly planned their drawdown years. They had continued to rely upon the strategies that had served them well while they were saving. The reality is, you need to think quite differently when the flow of funds reverses from saving to funding. Proper planning for their drawdown years would have mitigated a significant portion of this reduced cash flow.
These are things I couldn’t share with her, I was afraid it would only bring a deeper hurt to the surface. However, I can tell others.
We have all experienced the remorse that occurs when we realize that if we had only known then, what we now know, we would have made far better decisions.
Just at your darkest moment, when you are down as far as you think you can go, the unrelenting maw of our tax and entitlement bureaucracy will beat you down even further.
Those who rely upon trained Retirement Income Specialists to plan and thoroughly explore and stress test various scenarios of their longevity will sidestep some of the worst outcomes. Guaranteed.