Last week was aptly named “death, divorce and debt” week.
Martin covered this phenomena in detail last Friday in another interesting episode on Informed Choice Radio.
Most people enter retirement as a couple.
It is, of course, inevitable that one half of the couple will die before the other, and any retirement income plan must, of course, take this into account.
However, death remains the biggest taboo and, perhaps, because of this, it is rare to see the impact of the death of the first partner set out clearly in plans I have come across.
The death of the first partner has an enormous impact on household finances in retirement.
-Household income usually reduces as the income from state pensions and defined benefit pensions usually reduce.
-Tax often increases, partly because spouses are taxed independently, so income which was previously shared may be paid in its entirety to the surviving spouse.
-Expenditure usually reduces. Statistics show that, in the UK, households made up of one retired person spend around 48% of the amount that households made up of two retired people.
But this is largely due to the fact that the death of the first partner takes place, typically, in later retirement, when expenditure has already started to decline.
And of course, nobody is average, which is another reason to carry out accurate analysis of your expenditure as part of your plan.
If you are to plan for a happy retirement, you do need to ensure that you have a good retirement income plan, and it shouldn’t ignore uncomfortable issues like the death of the first partner.
The stages of widowhood in relation to finances and the financial actions which accompany these stages have been excellently described by US expert Kathleen Rehl:
Grief. During this period, it’s usually difficult to make any decisions, let alone any financial decisions. Kathleen’s advice is to do the absolute minimum (just administering your finances) and to avoid making any significant financial decisions. Don’t make any major decisions about your finances until you have reached stage three.
Growth. The time it takes to move from one phase to another varies from person to person. In the growth phase, you can draw up plans for the future. You should be drawing up plans for the future, but Kathleen says that you should be cautious about acting on those plans.
Grace. Having grieved and planned for the future, you can now move on with the next part of your life. Now you should implement your financial plan, based on what you would like to do in the next part of your life.
If you have suffered a recent loss, Kathleen’s website is worth looking at.
The main message is to avoid doing too much, too soon.
Death in later life should be factored into your plans for retirement income. Here's what to consider. Share on X