Surviving spouses face tricky finances

At retirement age, women are more vulnerable to monetary stress.
MILWAUKEE -- James Giegler died in September 2001, leaving a grieving widow and shattered financial plans.
When he retired from his job as a truck driver two years before his death at age 62, Giegler had qualified for a pension. He and his wife of 17 years, Marge, had selected an option that ended payments to her a few years after he died.
They could have taken a smaller monthly pension guaranteed to last until the second of them died.
"We sat down and talked about this a lot," Marge said of the choice. "I was hopefully going to retire at 55. He had a pretty good pension and I would have had a pretty good pension."
Instead, she is now 56 and continues to work, recalibrating her financial future.
Marge Giegler is better off financially than many widows, but her situation illustrates a larger issue -- when women hit retirement age, they are much more vulnerable to monetary stress than are men.
Various issues
The reasons are varied, said Anna Rappaport, a past president of the Society of Actuaries, which recently issued a report on the subject.
Biology has something to do with it -- women live longer than men.
That means "the resources that they have accumulated when they retire are going to have to be spread over a longer period of time," said Karen Holden, a professor at the University of Wisconsin-Madison, who studies the issue.
But culture is involved, too.
"Married women are likely to outlive their husbands both because of their longer life spans and because they often marry older husbands," according to the report, entitled "The Impact of Retirement Risk on Women." In fact, 75 percent of women 85 or older are widowed, according to the Women's Institute for a Secure Retirement.
As with Marge Giegler, who teaches in the Yorkville Elementary School in Union Grove, Wis., one-third of women who become widows do so before 65, according to the institute.
Finally, the resources women bring to retirement tend to be smaller than what a man has been able to accumulate during a working life, because on average, women earn less than men. Furthermore, the careers of women are frequently interrupted to raise children and care for other family members.
The legal system tries to adjust for this, but with limited success.
To follow the law, Marge Giegler had to sign off on the pension option her husband chose, but many couples do not communicate about it very well, said Rappaport, who is a consulting actuary based in Chicago.
Recognizing value
Social Security also recognizes the value of a nonworking spouse. If a man and woman have been married for at least 10 years, the surviving spouse has a claim on the other's benefits. Social Security usual pays the survivor only about two-thirds of the benefits given to two people, but "it takes about 75 cents on the dollar to live same as an individual as than as a couple," Rappaport said.
About 60 percent of retired women receive enhanced Social Security checks because their husbands earned more than they did, the report found. "In evaluating timing of retirement, beneficiaries often forget that if the husband retires later, it will result in ... a larger widow's benefit," the report says.
James Giegler was about 10 years older than his wife and collected only a few months of Social Security benefits before he died, Marge said. She is still working and has yet to collect any.
The couple had no children, and after he died, Marge invested his life insurance and remaining pension checks.
Overall, she is in good shape, said Mark Karpfinger, a financial planner with Ameriprise Financial Services Inc. who handles her investments. Because she has worked at one place for so long, Giegler has a pension that guarantees her a life income, which is different than most of his clients, Karpfinger said. She also has about 250,000 in various securities and can expect about 3,000 a month in pension and Social Security benefits were she to retire soon, he estimates. In addition, Marge just made the last mortgage payment on a house in Wind Lake that she estimates is worth another 250,000.
Good rule
As a rule of thumb, a person can take between 4 percent and 5 percent of their investments to live on every year and not run the risk of running out of money however long they live, according to Karpfinger and Holden.
However, if the value of those investments declines, so does the 4 percent or 5 percent.
For that reason, the goal for retirees "is not to have the biggest pot of money but to have a stream of income that will last for your lifetime and maintain your purchasing power," said financial planner Paula Hogan. Because women live longer then men, this need is more acute for them, she said.
A good solution is to buy an annuity that automatically adjusts for inflation, but that is a path fraught with problems, Hogan said.
It can be very difficult to get money out of an annuity in case of an emergency, she noted, so they are usually not suggested for younger people.
In addition, the market for inflation-adjusted annuities is still developing, Hogan said, so costs and fees can vary widely.
People with large sums of money can arrange their financial lives to provide enough income to live on. For those with less, "ages 70 to 75 is a good time to be doing some annuitization," said Rappaport. "It is expensive, but you might live a really long time."

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