How Much to Save for Retirement If a Spouse Has a Pension

If you’re worried that you won’t have enough money at retirement, you aren’t alone. Approximately half of all Americans surveyed said they don’t plan to have enough to retire comfortably. Even realizing this, though, it can be tough to know exactly how much to save. This is especially true if you’re married and your spouse is also setting some money aside. Things get even more complicated – in a good way – if your spouse has a pension.

TL;DR (Too Long; Didn't Read)

To determine how much to save, calculate the amount you’ll get each month in pensions and Social Security and weigh that against your estimated monthly expenses.

How Much Retirement Money Will You Need?

Before you can determine if you’ll have enough to retire with your spouse’s pension, you should first calculate how much you’ll need. You can then estimate pension payout amounts and figure out how much will be necessary to make up the difference. Recommendations can vary from one expert to the next, but overall, this estimate is expressed as a percentage of what you made while you were working. So, if you disagree with the common recommendation to save enough to replace 80 percent of your income every year, you’ll need to adjust that.

In order to estimate how much you’ll need to live on after retirement, tally up your current living expenses and note how well your income is covering that. Look at areas you’ll plan to cut back to be able to afford the percentage you’ve estimated. If you plan to save enough to live on 80 percent, for instance, you’ll need to figure out where you’ll get that additional 20 percent, assuming you don’t have 20 percent left over every month. You may plan to pay off your house and live mortgage free, for instance, in which case you’ll need to plan to pay at least a little each year for property tax and homeowners' insurance. You may realize that commuting costs and eating out will also be out of the budget once you’re no longer going to an office every day, further saving money.

Pensions and Spouse Benefits

When your spouse retires, he’ll need to make some decisions about how he’ll take his pension. He’ll be offered two options: a single-life benefit based on his own individual life expectancy and the years of service or a joint and survivor benefit, which bases payment on your combined lifetime expectancies. If he chooses the joint option and he dies before you do, you’ll continue to receive benefits.

Before the pension can begin, though, you as the spouse will be required to sign a spousal consent form. This form is designed to protect your spouse pension rights by making sure you know that you won’t continue to receive benefits after your husband’s death if he chose the single-life benefit option. This form is not required by law for state and local government pensions, though, and even if you don’t see a form, you may want to check to make sure your spouse will take the joint and survivor benefit option before you make plans for your own retirement. This option will result in a lower monthly benefit for your spouse but more protection for you.

Pensions and Health Benefits

One serious consideration as you’re planning your retirement savings is medical care. According to one estimate, the average retired couple would currently need $280,000 in savings to cover health care expenses alone. The good news is that some pensions' spouse benefits include medical coverage.

If your spouse pension rights include medical benefits, it makes choosing the joint and survivor benefit option all the more important. Those medical benefits may come to an abrupt halt if your spouse dies and the single-life benefit option was chosen. Carefully read the spousal consent form before you waive your rights to make sure you fully understand what you’re giving up.

Pension After Spouse Death

If you didn’t sign a waiver giving up your spouse pension entitlement and your spouse dies, you should be eligible for her benefits. The law applying to spouses was part of the Employee Retirement Income Security Act, which stipulates that spouses be able to receive an employee’s benefits after death. This was passed in 1984, so it applies to spouses of employees who worked under a private pension in 1985 or after. It does not apply to government pensions, but there should be regulations specific to those that you can check on before retirement. The federal government offers spouse pensions if the deceased completed at least 18 months of credible service and was covered by the Civil Service Retirement System.

Upon your spouse’s death, her pension should transfer to you immediately as long as she was already retired. If she dies before retirement, you’ll usually be asked to choose between receiving the benefits on the date she would have reached early retirement age or waiting for normal retirement age. Early retirement results in a smaller monthly payout. Even if you’re divorced, you may be entitled to retirement benefits provided that the pension was part of the division of assets during divorce proceedings.

Social Security Benefits

Another factor to consider is your combined Social Security income that you’ll get once you reach retirement age. Whether or not you have spouse pension rights, you will have rights to your spouse’s Social Security as long as you meet the requirements. If you receive Social Security benefits of your own, the Social Security Administration will pay your benefits unless your spouse’s are higher, at which point you’ll get a combination of both.

If you’ve never worked, though, you’ll be able to apply for a portion of your spouse’s Social Security benefits. In addition to any spouse pension entitlement, that means you’ll get his Social Security benefits, and it won’t decrease the amount he receives. Dependents may also be entitled to benefits, but there is a limit. Generally speaking, the SSA won’t pay more than 150 to 180 percent on one person’s benefits.

Pension and Social Security Estimates

You likely just want to know how much you can expect to bring in each month after retirement. To do that, you’ll need to gather some information. Periodically, the SSA mails a statement that provides an estimate of how much you can expect to collect each month once you reach retirement age. This estimate will be more accurate the closer you get to the big day, but it can at least give you a general idea.

Hopefully, your spouse’s benefits administrator will periodically send out a statement letting you know how much you’ll expect to earn each month off her pension as well. If not, consider sitting down with her administrator and determining how much you each can expect to receive. It will likely be only a portion of what she makes now, but if you can ballpark that percentage, you’ll better be able to estimate.

If you have a 401(k) or other retirement savings account, you can also figure out how much you can expect to bring in each month from that. There isn’t a spouse pension entitlement attached to a 401(k) plan as long as your spouse is still alive. However, if your spouse passes away and you’re listed as the beneficiary, the funds will go to you. How much your spouse will earn after retirement depends on how early she began putting money into the account and how much she invested.

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