Are we neglecting the value of the second Social Security benefit?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
technovelist
Posts: 2694
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Are we neglecting the value of the second Social Security benefit?

Post by technovelist » Mon Jun 06, 2016 10:43 pm

I think most people here know that when one spouse dies, the other spouse gets whichever SS benefit is the greater. (Oversimplifying a little, but without doing violence to the sense of the issue).

Of course some costs go down when one person dies, but there are also extra costs involved, so it's not obvious that overall living costs go down in any brief time interval.

To make this more concrete, let's assume two spouses both aged 67, where one spouse's benefit is $2000/mo. and the other's is $1500/mo.

So what this means is that:

1. While both spouses are alive, the household gets $3500/mo.
2. After one spouse dies, the household gets $2000/mo.

What would it cost to buy an immediate annuity paying $1500/mo. for a female age 67, to replace the lost second benefit in the event of the husband dying early? According to immediateannuities.com, that would cost over $275,000. And that is without the inflation adjustment that SS provides!

This is almost certainly the largest "financial asset" that most households headed by older people have. Of course I'm not talking about the typical poster here, but even for somewhat wealthier people this is a fair chunk of change.

Yet no one does anything to protect this highly valuable asset.

But is there anything that can be done?

I think so. Namely, term life insurance on both spouses, if they are in good health, is an affordable way to mitigate this loss. For example, a 15-year term policy on both of the spouses above, if they are in good but not great health, would cost about $425/mo, far less than the benefit being protected.

Of course it is true that if both spouses live beyond the term of the insurance, then they have "wasted" the premiums, which is true of any life insurance that you outlive. But in that case, the $3000/mo. total household benefit has been received for the term of the insurance. On the other hand, if one spouse dies during the term of insurance, then the survivor gets (generally tax-free) cash to mitigate the loss of the second SS benefit.

In effect, this cuts off the left-hand tail of bad results due to one of the spouses dying relatively early in retirement.

Have I figured out something new, or am I missing something that negates this analysis?

Note: this is personal and actionable, as I'm in a situation similar to the example I gave, although the numbers have been changed to protect the innocent. :)

(Edited to change "spousal" to "second", as that is what I'm really talking about).
Last edited by technovelist on Tue Jun 07, 2016 11:06 am, edited 1 time in total.
In theory, theory and practice are identical. In practice, they often differ.

joebh
Posts: 1708
Joined: Mon Mar 02, 2015 3:45 pm

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by joebh » Tue Jun 07, 2016 5:56 am

technovelist wrote:Namely, term life insurance on both spouses, if they are in good health, is an affordable way to mitigate this loss. For example, a 15-year term policy on both of the spouses above, if they are in good but not great health, would cost about $425/mo, far less than the benefit being protected.


At what age do you propose purchasing 15-year term insurance such that it only costs $425/month total?

Why would you purchase insurance for a term of 15-years? That seems like a rather short period of time.

The Wizard
Posts: 11114
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by The Wizard » Tue Jun 07, 2016 6:10 am

You are over thinking this as well as computing it wrong.
It costs way more than $1500 a month to support a second person in a household.

Consider a contrasting scenario, that of marrying late in life to a person with no financial assets and just a $1500/month SS check for income.
That would hardly seem like a net financial gain.

My analysis implicitly assumes that you have additional income of a few thousand $$ per month from joint assets that will continue after the death of spouse 1...
Attempted new signature...

technovelist
Posts: 2694
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by technovelist » Tue Jun 07, 2016 8:20 am

joebh wrote:
technovelist wrote:Namely, term life insurance on both spouses, if they are in good health, is an affordable way to mitigate this loss. For example, a 15-year term policy on both of the spouses above, if they are in good but not great health, would cost about $425/mo, far less than the benefit being protected.


At what age do you propose purchasing 15-year term insurance such that it only costs $425/month total?

Why would you purchase insurance for a term of 15-years? That seems like a rather short period of time.


The approximate yearly premium for policies of $250K initiated at male age 67 and female age 67, both rated NSP (non-smoker plus, the first rating above standard) by Prudential, is $2950 and $2150 respectively, or a total of $5100/year. That works out to a little over $425/mo.

As to why 15 years, that is because most companies won't write anything longer at ages over 65. But even a 15 year policy protects against death of either spouse for the next 15 years, so that the worst case scenario of one spouse dying during that time (and leaving the other with far lower income) is mitigated.
In theory, theory and practice are identical. In practice, they often differ.

technovelist
Posts: 2694
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by technovelist » Tue Jun 07, 2016 8:26 am

The Wizard wrote:You are over thinking this as well as computing it wrong.
It costs way more than $1500 a month to support a second person in a household.

Consider a contrasting scenario, that of marrying late in life to a person with no financial assets and just a $1500/month SS check for income.
That would hardly seem like a net financial gain.

My analysis implicitly assumes that you have additional income of a few thousand $$ per month from joint assets that will continue after the death of spouse 1...


That depends on your standard of living, of course, but I doubt my wife costs anything like $1500/mo. extra to support.

And while the severity of the effects of the income loss depends on your other assets, losing that second benefit is still like losing an inflation-adjusted life annuity of $1500/mo, which would as I indicated cost more than $250K (depending on sex).
In theory, theory and practice are identical. In practice, they often differ.

neilpilot
Posts: 1085
Joined: Fri Dec 04, 2015 1:46 pm
Location: Memphis area

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by neilpilot » Tue Jun 07, 2016 8:38 am

Topic being discussed is "Survivor Benefit", not Spousal Benefit", which I start this month at FRA (DW is not deceased).

technovelist
Posts: 2694
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by technovelist » Tue Jun 07, 2016 8:47 am

neilpilot wrote:Topic being discussed is "Survivor Benefit", not Spousal Benefit", which I start this month at FRA (DW is not deceased).


No, it is the second benefit that is lost when one spouse dies. When that happens, household income declines from the original two benefits to the survivor benefit.

(Edited to correct "spousal" benefit to "second" benefit)
Last edited by technovelist on Tue Jun 07, 2016 12:36 pm, edited 1 time in total.
In theory, theory and practice are identical. In practice, they often differ.

joebh
Posts: 1708
Joined: Mon Mar 02, 2015 3:45 pm

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by joebh » Tue Jun 07, 2016 8:56 am

technovelist wrote:
joebh wrote:
technovelist wrote:Namely, term life insurance on both spouses, if they are in good health, is an affordable way to mitigate this loss. For example, a 15-year term policy on both of the spouses above, if they are in good but not great health, would cost about $425/mo, far less than the benefit being protected.


At what age do you propose purchasing 15-year term insurance such that it only costs $425/month total?

Why would you purchase insurance for a term of 15-years? That seems like a rather short period of time.


The approximate yearly premium for policies of $250K initiated at male age 67 and female age 67, both rated NSP (non-smoker plus, the first rating above standard) by Prudential, is $2950 and $2150 respectively, or a total of $5100/year. That works out to a little over $425/mo.

As to why 15 years, that is because most companies won't write anything longer at ages over 65. But even a 15 year policy protects against death of either spouse for the next 15 years, so that the worst case scenario of one spouse dying during that time (and leaving the other with far lower income) is mitigated.


But a 67 year old male would be expected to live to over 84, and a female to over 86.
So is spending $76000 worthwhile? It wouldn't be for me.

SouthernCPA
Posts: 626
Joined: Wed Sep 23, 2015 10:20 am

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by SouthernCPA » Tue Jun 07, 2016 9:09 am

I believe this is one of those scenarios that would not apply to real life. Sure, the circumstances happen, in fact I just helped my grandmother sort out her survivor benefits (she too took a reduction) after my grandfather passed away last year, but in practical application, I just do not see anyone taking out a $425/month term policy to mitigate the possible loss in SS income.

Why not? My gut tells me that the family who would volunteer to pay $425 a month for a term policy is also the family that has been investing throughout their lifetime and has other assets to draw on. On the flip side of that coin, the family where a reduction in SS Benefits is a "make or break" scenario is not going to be the family that has a spare $425/month to invest into a term policy that may or may not help them. Usually those that rely solely on SS are also those who live paycheck to paycheck their entire lives (and would not be able to afford the $425/month). In the case of my grandmother, she "lost" about $1,700 a month in benefits when my grandfather passed away. Fortunately, for her, she has no debt, a modest lifestyle and my grandfather had put away plenty of money that she can draw down to replace the difference without ever running out of money. The insurance in this case would have probably been a waste of money.

I can see the logic and can calculate that it could make sense on paper, but from what I've seen in my work, the people who would take out the $425/month policy are typically also the people who have other assets to rely on, thus making the proposition even less "crucial" for those individuals. The ones who would absolutely need the insurance, likely can't afford it from their monthly operating budget.

Da5id
Posts: 1637
Joined: Fri Feb 26, 2016 8:20 am

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by Da5id » Tue Jun 07, 2016 9:17 am

Doesn't seem like a terrible idea. But doubt many would do it. Deferred fixed annuity is a competing form of insurance for a different risk. If you insure against losing spouse too early and against living too long and against long term care and umbrella etc, you eventually will run out of money from the insurance premiums.

I guess you need to pick the most probable ways that you can go broke and do what you can to mitigate them...

technovelist
Posts: 2694
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by technovelist » Tue Jun 07, 2016 9:18 am

SouthernCPA wrote:I believe this is one of those scenarios that would not apply to real life. Sure, the circumstances happen, in fact I just helped my grandmother sort out her survivor benefits (she too took a reduction) after my grandfather passed away last year, but in practical application, I just do not see anyone taking out a $425/month term policy to mitigate the possible loss in SS income.

Why not? My gut tells me that the family who would volunteer to pay $425 a month for a term policy is also the family that has been investing throughout their lifetime and has other assets to draw on. On the flip side of that coin, the family where a reduction in SS Benefits is a "make or break" scenario is not going to be the family that has a spare $425/month to invest into a term policy that may or may not help them. Usually those that rely solely on SS are also those who live paycheck to paycheck their entire lives (and would not be able to afford the $425/month). In the case of my grandmother, she "lost" about $1,700 a month in benefits when my grandfather passed away. Fortunately, for her, she has no debt, a modest lifestyle and my grandfather had put away plenty of money that she can draw down to replace the difference without ever running out of money. The insurance in this case would have probably been a waste of money.

I can see the logic and can calculate that it could make sense on paper, but from what I've seen in my work, the people who would take out the $425/month policy are typically also the people who have other assets to rely on, thus making the proposition even less "crucial" for those individuals. The ones who would absolutely need the insurance, likely can't afford it from their monthly operating budget.


This is similar to the discussion about the unfortunate fact that people who need to take risks are the ones who can't afford it.

However, even a much lower face amount, for a shorter term, would help greatly in the event of early death. E.g., 100K for 10 years for both spouses would cost about $120/month and would still mitigate the loss of the second benefit for 10 years. I suspect most people with a $3500/month SS benefit could probably find that much money if they thought it was necessary.

(Note: all of these premiums are publicly available at Prudential.com. If anyone wants to look up the rates him/herself, go to https://www.prudential.com/personal/life-insurance, enter a zip code, and answer a few questions, and they'll provide rates for which rating would probably apply, as well as rates for any lower ratings down to standard.)
Last edited by technovelist on Tue Jun 07, 2016 9:21 am, edited 2 times in total.
In theory, theory and practice are identical. In practice, they often differ.

technovelist
Posts: 2694
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by technovelist » Tue Jun 07, 2016 9:19 am

Da5id wrote:Doesn't seem like a terrible idea. But doubt many would do it. Deferred fixed annuity is a competing form of insurance for a different risk. If you insure against losing spouse too early and against living too long and against long term care and umbrella etc, you eventually will run out of money from the insurance premiums.

I guess you need to pick the most probable ways that you can go broke and do what you can to mitigate them...


Yes, a deferred fixed annuity can also increase the sustainable withdrawal rate by allowing faster spend-down in the near term.
In theory, theory and practice are identical. In practice, they often differ.

randomguy
Posts: 5027
Joined: Wed Sep 17, 2014 9:00 am

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by randomguy » Tue Jun 07, 2016 9:21 am

technovelist wrote:
joebh wrote:
technovelist wrote:Namely, term life insurance on both spouses, if they are in good health, is an affordable way to mitigate this loss. For example, a 15-year term policy on both of the spouses above, if they are in good but not great health, would cost about $425/mo, far less than the benefit being protected.


At what age do you propose purchasing 15-year term insurance such that it only costs $425/month total?

Why would you purchase insurance for a term of 15-years? That seems like a rather short period of time.


The approximate yearly premium for policies of $250K initiated at male age 67 and female age 67, both rated NSP (non-smoker plus, the first rating above standard) by Prudential, is $2950 and $2150 respectively, or a total of $5100/year. That works out to a little over $425/mo.

As to why 15 years, that is because most companies won't write anything longer at ages over 65. But even a 15 year policy protects against death of either spouse for the next 15 years, so that the worst case scenario of one spouse dying during that time (and leaving the other with far lower income) is mitigated.


And provides zero protection for 83+. The odds favor a nonsmoker+ is making to 82 given they are a lot healthier than the average SS male (i.e. we are going to be taking all the smokers, obese, people working on their 3rd heart attack diabetics,... out of the pool). Would they be better off investing that 5k/year and having 125k+ when the spouse dies to buy some annuity versus having 0?:)

Obviously it depends on if you die at 68,81 or 83 as far as what the right course of action is. You need to consider which of the risks you want to hedge against and which ones you want to take.

technovelist
Posts: 2694
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by technovelist » Tue Jun 07, 2016 9:36 am

randomguy wrote:
technovelist wrote:
joebh wrote:
technovelist wrote:Namely, term life insurance on both spouses, if they are in good health, is an affordable way to mitigate this loss. For example, a 15-year term policy on both of the spouses above, if they are in good but not great health, would cost about $425/mo, far less than the benefit being protected.


At what age do you propose purchasing 15-year term insurance such that it only costs $425/month total?

Why would you purchase insurance for a term of 15-years? That seems like a rather short period of time.


The approximate yearly premium for policies of $250K initiated at male age 67 and female age 67, both rated NSP (non-smoker plus, the first rating above standard) by Prudential, is $2950 and $2150 respectively, or a total of $5100/year. That works out to a little over $425/mo.

As to why 15 years, that is because most companies won't write anything longer at ages over 65. But even a 15 year policy protects against death of either spouse for the next 15 years, so that the worst case scenario of one spouse dying during that time (and leaving the other with far lower income) is mitigated.


And provides zero protection for 83+. The odds favor a nonsmoker+ is making to 82 given they are a lot healthier than the average SS male (i.e. we are going to be taking all the smokers, obese, people working on their 3rd heart attack diabetics,... out of the pool). Would they be better off investing that 5k/year and having 125k+ when the spouse dies to buy some annuity versus having 0?:)

Obviously it depends on if you die at 68,81 or 83 as far as what the right course of action is. You need to consider which of the risks you want to hedge against and which ones you want to take.


If you have a 15-year term policy, you know that for the next 15 years you will get either that second benefit or the life insurance payout. This allows you to increase spending from your assets for the next 15 years without having to worry about the loss of the second benefit.

Of course it would be better to know when you are going to die, but no one knows that in advance. I guess that's a good thing in some ways because it would make life insurance impossible.

(BTW, the insurance rates I'm referring to are non-smoker rates; rates for smokers are much higher and don't make any sense in this connection.)
In theory, theory and practice are identical. In practice, they often differ.

neilpilot
Posts: 1085
Joined: Fri Dec 04, 2015 1:46 pm
Location: Memphis area

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by neilpilot » Tue Jun 07, 2016 10:40 am

technovelist wrote:
neilpilot wrote:Topic being discussed is "Survivor Benefit", not Spousal Benefit", which I start this month at FRA (DW is not deceased).


No, it is the spousal benefit that is lost when one spouse dies. When that happens, household income declines from the original two benefits to the survivor benefit.


In your original post you state "let's assume two spouses both aged 67, where one spouse's benefit is $2000/mo. and the other's is $1500/mo.". So the spouse is receiving THEIR OWN retirement benefit under SS. If they were receiving a Spousal Benefit, it would be $1000/mo. So the spouse was never receiving a "spousal benefit"?
Last edited by neilpilot on Tue Jun 07, 2016 10:58 am, edited 1 time in total.

Enkidu
Posts: 194
Joined: Mon Jun 02, 2014 8:48 am

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by Enkidu » Tue Jun 07, 2016 10:53 am

I have also considered this issue.

The facts for my wife and I are a little different from what the OP laid out. We are both 64 and I am delaying SS benefits until 70. At this point it looks like we will be comfortable living on our floor (pension + SS) income after age 70 as long as we are both alive. If I die after age 70, my wife loses 50% of my pension in addition to her SS for a total reduction in floor income of 37%. If she dies after I reach 70, my pension would actually go up by 10% at the same time that I lose her SS benefit, for a total reduction in floor income of 11%. If she was to die before 70, I would draw survivors benefits until I file for my own benefit at 70.

If the survivor is to maintain 100% of our joint income, the balance would come from our other assets. My wife is the spender in the family and may need more that 63% of our joint income, but I would be fine living on 89% of our joint floor income, and I see no need for insurance on her life. My biggest concern is that I die early, before reaching age 70 when SS benefits are maximized, and she lives into her 90's, needing to draw on assets for many years. I have term insurance in place that will expire when I am 70 that would be enough for her to buy an annuity to make up for maximizing SS benefits.

I have considered buying additional term insurance on my life, maybe 10-15 years, so that she could buy an annuity and rely less on our portfolio if I die early and she lives a long life. The other alternative is a deferred annuity for her so that she spends from invested assets early, and then a deferred annuity kicks in for her if she lives beyond 85 or so.

So far I have not been able to convince myself that more term insurance or a deferred annuity is really necessary in our case because
1. She probably will not really need 100% of our joint income after I am gone.
2. She probably will be fine with 37% less floor income + withdrawals from assets, even if she lives a very long life.
3. I am in good health and expect to live at least 10-15 years.

technovelist
Posts: 2694
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by technovelist » Tue Jun 07, 2016 11:07 am

neilpilot wrote:
technovelist wrote:
neilpilot wrote:Topic being discussed is "Survivor Benefit", not Spousal Benefit", which I start this month at FRA (DW is not deceased).


No, it is the spousal benefit that is lost when one spouse dies. When that happens, household income declines from the original two benefits to the survivor benefit.


In your original post you state "let's assume two spouses both aged 67, where one spouse's benefit is $2000/mo. and the other's is $1500/mo.". So the spouse is receiving THEIR OWN retirement benefit under SS. If they were receiving a Spousal Benefit, it would be $1000/mo. So the spouse was never receiving a "spousal benefit"?


Yes, you are correct, thanks. I should have said "the second social security benefit", not the "spousal" benefit. The issue is not whose record is being claimed on, but the drop in income when that second benefit is lost at the death of one spouse.
In theory, theory and practice are identical. In practice, they often differ.

technovelist
Posts: 2694
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by technovelist » Tue Jun 07, 2016 11:09 am

Enkidu wrote:I have also considered this issue.

The facts for my wife and I are a little different from what the OP laid out. We are both 64 and I am delaying SS benefits until 70. At this point it looks like we will be comfortable living on our floor (pension + SS) income after age 70 as long as we are both alive. If I die after age 70, my wife loses 50% of my pension in addition to her SS for a total reduction in floor income of 37%. If she dies after I reach 70, my pension would actually go up by 10% at the same time that I lose her SS benefit, for a total reduction in floor income of 11%. If she was to die before 70, I would draw survivors benefits until I file for my own benefit at 70.

If the survivor is to maintain 100% of our joint income, the balance would come from our other assets. My wife is the spender in the family and may need more that 63% of our joint income, but I would be fine living on 89% of our joint floor income, and I see no need for insurance on her life. My biggest concern is that I die early, before reaching age 70 when SS benefits are maximized, and she lives into her 90's, needing to draw on assets for many years. I have term insurance in place that will expire when I am 70 that would be enough for her to buy an annuity to make up for maximizing SS benefits.

I have considered buying additional term insurance on my life, maybe 10-15 years, so that she could buy an annuity and rely less on our portfolio if I die early and she lives a long life. The other alternative is a deferred annuity for her so that she spends from invested assets early, and then a deferred annuity kicks in for her if she lives beyond 85 or so.

So far I have not been able to convince myself that more term insurance or a deferred annuity is really necessary in our case because
1. She probably will not really need 100% of our joint income after I am gone.
2. She probably will be fine with 37% less floor income + withdrawals from assets, even if she lives a very long life.
3. I am in good health and expect to live at least 10-15 years.


As long as the potential loss in income isn't a problem for you, then you don't need to do anything.

However, for a lot of retirees, it would be a big hit to the survivor's standard of living if the second benefit were lost due to (relatively) early death of one spouse.
In theory, theory and practice are identical. In practice, they often differ.

User avatar
Higman
Posts: 214
Joined: Wed Aug 20, 2008 7:51 pm

Re: Are we neglecting the value of the second Social Security benefit?

Post by Higman » Tue Jun 07, 2016 11:22 am

Another consideration in this scenario is that you could also be thrust into a higher tax bracket filing as a single filer vs. jointly.

Bacchus01
Posts: 1144
Joined: Mon Dec 24, 2012 9:35 pm

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by Bacchus01 » Tue Jun 07, 2016 12:11 pm

The Wizard wrote:You are over thinking this as well as computing it wrong.
It costs way more than $1500 a month to support a second person in a household.

Consider a contrasting scenario, that of marrying late in life to a person with no financial assets and just a $1500/month SS check for income.
That would hardly seem like a net financial gain.

My analysis implicitly assumes that you have additional income of a few thousand $$ per month from joint assets that will continue after the death of spouse 1...


I'm not debating the whole premise, but the $1500/mo to support a second person I don't think is far off. For our family of 5, it costs about $20K/year per person. Trade educational, sports, clothing, etc. expenses for increased medical, etc., and I'd say $1500/mo is probably pretty close.

technovelist
Posts: 2694
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are we neglecting the value of the second Social Security benefit?

Post by technovelist » Tue Jun 07, 2016 12:33 pm

Higman wrote:Another consideration in this scenario is that you could also be thrust into a higher tax bracket filing as a single filer vs. jointly.


Yes, but that actually favors this solution because most life insurance death benefits aren't taxable.
In theory, theory and practice are identical. In practice, they often differ.

Da5id
Posts: 1637
Joined: Fri Feb 26, 2016 8:20 am

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by Da5id » Tue Jun 07, 2016 12:41 pm

Bacchus01 wrote:I'm not debating the whole premise, but the $1500/mo to support a second person I don't think is far off. For our family of 5, it costs about $20K/year per person. Trade educational, sports, clothing, etc. expenses for increased medical, etc., and I'd say $1500/mo is probably pretty close.


I'd agree here. Per-person costs presumably also include some that were being divided by two which will not drop if a spouse dies. e.g. if you want to stay in the same house, the property tax bill will not change when an occupant dies. If you are paying for house related services (house cleaning, lawn work, snow removal, etc), those won't change. House insurance won't change. If the two of you were sharing a car, many of the car related expense may stay the same. Utilities will drop, but not in half.

technovelist
Posts: 2694
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are we neglecting the value of the spousal Social Security benefit?

Post by technovelist » Tue Jun 07, 2016 12:52 pm

Da5id wrote:
Bacchus01 wrote:I'm not debating the whole premise, but the $1500/mo to support a second person I don't think is far off. For our family of 5, it costs about $20K/year per person. Trade educational, sports, clothing, etc. expenses for increased medical, etc., and I'd say $1500/mo is probably pretty close.


I'd agree here. Per-person costs presumably also include some that were being divided by two which will not drop if a spouse dies. e.g. if you want to stay in the same house, the property tax bill will not change when an occupant dies. If you are paying for house related services (house cleaning, lawn work, snow removal, etc), those won't change. House insurance won't change. If the two of you were sharing a car, many of the car related expense may stay the same. Utilities will drop, but not in half.


Right, and there are usually additional expenses which may be temporary but still require more cash than someone might have handy.

And of course the income drop is even worse when both spouses have roughly equal SS benefits, so that the income drop is about 50%.
In theory, theory and practice are identical. In practice, they often differ.

delamer
Posts: 3240
Joined: Tue Feb 08, 2011 6:13 pm

Re: Are we neglecting the value of the second Social Security benefit?

Post by delamer » Tue Jun 07, 2016 1:06 pm

Scott Burns discusses this general of survivors fairly regularly in his columns. Here is a quote from a June 2014 column:

"Yes, two people can't live for the same price as one. But a rule of thumb suggests that two people can live for 160 percent of the cost of one. By that measure, the cost of living should go down by about 37 percent when you become single."

Here's a link to the whole article:

https://assetbuilder.com/knowledge-cent ... ce-of-cake

Post Reply