Widowhood: The Overlooked Retirement Risk

The retirement savings of married couples may have to last for a long time. A LIMRA study published in 2005 notes that many people underestimate their life expectancy. Few understand the concept of joint life expectancy or recognize that life expectancy changes as they get older. With a married couple, both aged 70, there is an 88% chance that one will live beyond the male's life expectancy and a 77% chance of living beyond the female's life expectancy. They should consider setting an inflation-adjusted income target for 25 to 30 years. The probability of a wife surviving her husband means she has a greater risk that the remaining retirement assets will not be large enough to provide for her.

The role of life insurance

Life insurance coverage can be a critical component of a women's long term financial security. Single women may be able to purchase a policy insuring a parent or sibling. Or, they can use cash value policies on themselves to grow tax-deferred funds that may be used for retirement income.

A married woman who survives her husband can't know in advance how much of the retirement assets will remain for her to use. If the husband dies after an extended illness that creates medical or nursing home expenses, their retirement assets may be completely drained.

A life insurance policy insuring the husband can serve as a cash reserve to replace some of the lost assets. The income-tax-free policy death benefits can provide cash to shore up the widow's finances. These death benefits can act as a "financial safety net" to maintain the widow's financial security and peace of mind. A life insurance policy can provide a margin for error if their retirement plans don't work out as anticipated.

Most husbands want their widows to be financially secure. When they understand the risks their wives face, they are usually open to insuring themselves to protect their wives' financial freedom and standard of living. If they are insurable, they can feel good that they did what they could to provide a financially solid future.

There is no guarantee that the husband will die first. Sometimes, the wife is the first to die. If the husband bucks the odds and survives his wife, there are a variety of things he could do with the policy. He could use it to provide an inheritance to the children, donate it to his favorite charity, surrender it or sell in a life settlement.

Husbands sometimes object that they have the same potential risk if the wife becomes ill. Her medical expenses and nursing home costs could deplete their assets and leave him in financial difficulty. If he's concerned enough, the husband should consider purchasing a life policy on her.

The stakes in retirement planning are potentially higher for women than they are for men. Married women in particular must walk a financial tightrope in planning for and living through their golden years. Events that take place after they retire can directly impact their quality of life and they may be powerless to do anything about it.

If they become widows, they may need a cash reserve to recover from unexpected losses. Life insurance is an excellent tool for bolstering the finances of the surviving spouse and securing a reasonable lifestyle for her or his remaining years.