By Doug Dahmer, Emeritus Retirement Income Specialists
Special to the Financial Independence Hub
Take me with you when you go, girl
Take me anywhere you go
I’ve got nothin’ here but me, babe
Take me with you when you go — Jack White
Over my nearly 30 years of financial planning, death in a client family has given me both agonizingly poignant moments but also moments of tremendous encouragement for the human condition.
I have had the opportunity to work with bereaved spouses where we were able to allow them to stay in the family home and give their families the support and foundation they so desperately need.
I have also had the achingly sad moments of having to tell others how their worsened financial future will unfold due to their altered financial circumstances. The difference generally can be attributed to the existence of forward tax planning for the financial implications of the “first to die.”
Husbands and wives rarely die at the same time
While this latter scenario is an uncommon occurrence in my practice, I was recently reminded of the dramatic financial impact of death on the remaining spouse, when a widowed referral came to me for a second opinion. To her credit she and her husband had done many things right. Planned. Saved. Invested. Everything they thought they needed to do in their accumulation years. The only problem was it was too superficial and failed to address an inescapable truth: a husband and wife almost never die at the same time.
In the first few minutes of our discussion I knew where this story would go. The household gross income, around which they had planned their life, was going to be cut by nearly 40%, while the impact of income tax actually increased – the loss of income splitting is an extremely bitter pill.
Obviously this created an entirely different lifestyle outlook.
Many income streams dry up after first spouse dies
The usual suspects were at play: As the surviving spouse she would only be entitled to 60% of her husband’s company pension. His Old Age Security would be lost. But what surprised her most was the fact that she would only receive a small fraction of his CPP, You see the Canadian government caps the amount of CPP you can receive. On top of losing his Old Age Security, she also lost her own. Her loss of access to income splitting and the aggregation of their combined RRIF led to a significant claw back of her own Old Age Security. It was a painful review for both of us.
She left my office crushed for the second time in as many years. I have not seen her again, but I have thought about her situation quite a bit. You see proper planning for the second half of life could have prevented much of this predicament.
Drawdown years need different strategy than Accumulation years
Don’t get me wrong, this couple did many things right during their accumulation years. The problem, and it is an epidemic problem: they had not properly planned their drawdown years. They had continued to rely upon the strategies that had served them well while they were saving. The reality is, you need to think quite differently when the flow of funds reverses from saving to funding. Proper planning for their draw down years would have mitigated a significant portion of this reduced cash flow.
These are things I couldn’t share with her; I was afraid it would only bring a deeper hurt to the surface. However, I can tell everyone else.
Let’s be honest, we have all experienced the remorse that occurs when we come to the realization, if we had only known then, what we now know in the future, we would have made far better decisions. What we need is the benefit of hind-sight right now, not later.
Just at your darkest moment, when you are down as far as you think you can go, the unrelenting maw of our tax and entitlement bureaucracy will kick you in the stomach.
Those who rely upon trained retirement income specialists, to plan and thoroughly explore and stress test various scenarios of your longevity, will sidestep some of the worst outcomes. Guaranteed.
I continue to wonder why our government and an ill-equipped, accumulation-focused financial services industry allow this kind of tragedy to go on without lending a hand in the critical drawdown years.
Doug Dahmer, CFP, is founder and CEO of Emeritus Retirement Income Specialists. With offices in Toronto and Burlington, Emeritus’ C3 process is one of the industry’s most comprehensive retirement planning processes.
Those who rely upon trained retirement income specialists, to plan and thoroughly explore and stress test various scenarios of your longevity will sidestep some of the worst outcomes. Guaranteed.
I will have to think about how and why our government and an ill equipped, accumulation focused financial services industry allow this kind of tragedy to go on without lending a hand in the critical drawdown years.