When planning for retirement, couples often focus on enjoying their golden years together. However, few take the necessary steps to prepare for the day when one spouse passes away. The reality is stark: many surviving spouses face significant financial hardship due to the loss of income, increased taxes, and unforeseen challenges. Proactively preparing can mean the difference between financial security and uncertainty for the surviving spouse.

Here are 10 essential action steps couples can take now to safeguard the survivor’s financial future: 

1. Optimize Social Security Claiming Strategies 

Social Security plays a vital role in retirement income, especially for the surviving spouse. When the higher-earning spouse delays benefits until age 70, the survivor receives a larger benefit. Conversely, claiming early permanently reduces the amount the surviving spouse will inherit. Make this decision strategically to maximize long-term income. 

2. Review Pension Elections Together 

One common mistake couples make is opting for the single-life payout for a higher monthly pension during retirement. However, this leaves the surviving spouse without ongoing income. Instead, choose the joint-and-survivor option, which provides the surviving spouse with a percentage of the benefit for the rest of their life. 

3. Plan for Long-Term Care Costs 

Long-term care expenses can rapidly deplete a couple’s savings, leaving the surviving spouse financially vulnerable. Options like long-term care insurance or hybrid life insurance policies can help cover these costs. Consider creating a Medicaid-compliant trust to shield assets while qualifying for assistance if necessary. 

4. Implement Proactive Tax Planning 

After the death of a spouse, the surviving spouse moves to single filing status, which means higher tax rates on lower income thresholds. Additionally, the survivor will inherit the deceased spouse’s IRA or 401(k) and be responsible for their Required Minimum Distributions (RMDs). Strategies like ROTH conversions during the earlier years of retirement can help reduce future tax burdens and protect the surviving spouse from higher taxes.

5. Update and Align Estate Plans 

Estate planning isn’t just about having a will. It involves ensuring assets transfer efficiently to the surviving spouse and avoiding costly probate processes. Review and update: 

● Wills and trusts to reflect current wishes. 

● Beneficiary designations on retirement accounts, life insurance, and bank accounts. 

● Powers of attorney and healthcare directives for both spouses. 

Consider using transfer-on-death (TOD) designations to streamline asset transfers. 

6. Coordinate Retirement Accounts and RMDs 

RMDs can significantly increase a widow or widower’s taxable income. Couples should evaluate how both spouses’ retirement accounts will be managed when only one is left. Consolidating accounts and planning withdrawals can reduce the complexity for the survivor. 

7. Create a Survivor Income Plan 

The death of a spouse often results in the loss of one Social Security benefit and, potentially, a reduction in pension income. Work with a financial advisor to project these scenarios and create a plan that ensures the surviving spouse will have sufficient income to maintain their lifestyle. Don’t forget to establish an emergency fund to cover unforeseen expenses. 

8. Monitor Medicare and IRMAA Impacts 

When taxable income rises due to RMDs or other factors, the surviving spouse may face IRMAA surcharges (Income-Related Monthly Adjustment Amounts) on their Medicare premiums. These surcharges can significantly increase healthcare costs. Proper tax and income planning can help mitigate these charges. 

9. Address Longevity Risks 

Women, in particular, live longer than men on average. This longevity increases the risk of outliving savings. Couples should consider:

● Adjusting investment strategies to provide long-term growth. 

● Creating income sources like annuities that guarantee lifetime payouts for the surviving spouse. 

● Factoring in inflation when estimating future living expenses. 

10. Establish a Support Network 

Losing a spouse is emotionally and financially overwhelming. Build a support team that includes: 

● A trusted financial advisor who understands your family’s unique needs. 

● An estate attorney to handle necessary legal updates. 

● A CPA to navigate the tax complexities of becoming a single filer. 

Additionally, ensure family members or trusted friends are aware of the plan to provide emotional and logistical support when needed. 

Why Taking Action Now Matters 

Waiting until a spouse passes away to address these issues can result in rushed decisions, financial stress, and unintended consequences. By taking proactive steps now, couples can ensure that the surviving spouse is protected, confident, and financially secure.