Old Couple

Source: Flickr user Ian MacKenzie.

For married baby boomers, retirement planning isn't complete unless you deal with a question that no one really likes to ask: What happens when one spouse unexpectedly predeceases the other?

Planning for such a contingency need not be overwhelming, but it is vital to fold this concept into your retirement planning as early as possible. The choices you and your spouse make before retiring can make the difference between a surviving spouse living comfortably or one being left with little financial support.

Pension choices
Workers who are fortunate enough to have a pension waiting for them usually have the choice to receive their pension either as a lump sum or as a monthly payment. If you choose the latter, you'll often be given a few choices, such as life-only, which will impart the largest monthly benefit but will, unfortunately, stop when the recipient dies.

Other choices include joint-and-annuity payouts, which bestow reduced monthly benefits depending upon whether your spouse will receive one-half, two-thirds, or all of your monthly benefit. Federal pension law says that you may choose any of these options without having your spouse sign off, but he or she will need to agree to the lump-sum or life-only option.

It's important to think about this issue early on, because once you make a decision regarding the administration of your pension, it's permanent. If your spouse will need your pension in the event that you die first, then crunch some numbers to decide which option will work best for your particular situation.

Similarly, collecting Social Security early will reduce the benefits your spouse will receive in the event of your death. If you can afford to, wait until your full retirement age -- or, better yet, age 70 -- to collect, which will give your widow or widower the maximum benefit under Social Security guidelines.

IRAs and insurance policies
While 401(k) accounts pass to a spouse by law, the same isn't true of individual retirement accounts. Make sure you and your spouse name each other as beneficiaries. The same goes for any life insurance policies you may have.

Make it a habit to check beneficiaries on a regular basis to make sure, for example, that you didn't forget to change an IRA or insurance beneficiary to your current spouse if you have divorced and remarried.

Mortgage payoff
If you still have a mortgage on your home, taking steps now will prevent your partner from having to pay the mortgage alone or being forced to sell the house.

If your mortgage is fairly recent, you may already have mortgage life insurance. While this policy will pay off the loan if you die, be aware that this type of policy is more protective of the mortgage lender than of your surviving spouse. Those monthly premiums will be going toward a policy that decreases in value over time as your mortgage balance shrinks. 

For young boomers, taking out a term life policy, which guarantees a certain payout within a 10- or 20-year time span and doesn't build up cash value, might be the best, most affordable bet. The disadvantage for older baby boomers is that yearly premiums rise quickly along with the policyholder's age. 

If you're healthy and only want to insure the amount of your mortgage, though, the costs may well be less than $1,000 annually for a $200,000 policy spanning 20 years. When the policy expires, you may be able to renew if you wish.

As you and your spouse explore your own financial situation, you'll doubtless find more variables that will need to be factored into your retirement plans. Beginning the dialogue as early as possible will help you build the most effective strategy for protecting the security of the surviving spouse in case an unexpected loss occurs.

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