Question: I am planning my retirement from a company where I have worked for the past 39 years. I have a 401(k) and a pension that, thankfully, appears to have been properly funded by my company. I have been given the option of either choosing to take my full pension with no provision for my wife should I die before her, or a reduced payment so that, should I die first, my wife will receive 60 percent of my pension amount for the rest of her life. My wife has not worked outside the home. I am 63 and she is 59. We have talked to a financial planner and a certified public accountant. Each gave us different advice, and we can’t reconcile the conflicting opinions.

Answer: The question you ask is not only relevant in the private sector, but also to retiring state and federal employees, not to mention military personnel, because the death of a spouse causes significant effects upon the survivor, both emotionally and economically.

In addition to grief, the survivor – especially if it is a woman -- almost always suffers a loss of income. An example is Social Security, where a surviving spouse will receive an award based upon the greater of his or her work record or 100 percent of the deceased spouse’s record -- but not both. Similarly, those who receive distributions from private and public pension plans may suffer a loss of income depending on the type of annuity plan and survivor benefit chosen. But no matter which choice you make, there is a financial sacrifice. For example, those who chose two-life annuities (which are calculated to pay a reduced amount to the employee-spouse during his or her life and then a percentage of that amount until the death of the second spouse) will not lose as much income upon the death of a spouse, but there will be less money available during the life of the employee-spouse.

In addition, without appropriate planning, the death of a spouse can also reduce assets because of the expense of the final illness. Even with Medicare and supplemental insurance, the surviving spouse may be required to pay some out-of-pocket expenses, not to mention the cost of the funeral. And if the deceased spouse was a victim of a chronic illness, the cost of uninsured long-term care prior to death can seriously deplete the couple’s financial resources. Moreover, if the couple relied on Medicaid to help pay the expenses of the deceased spouse, in many instances, a large portion of the couple’s assets was used to pay medical expenses and long-term care costs of the deceased spouse before they became financially eligible for Medicaid.

As a result, surviving spouses often have substantially fewer assets and less income for their support than the couple had planned for. Faced with diminished financial resources, many surviving spouses must reevaluate their housing and other economic needs in order to live more frugally.

Taking The NextStep: The decision of whether to opt for a survivor annuity depends on your overall plan. Some who do not choose the survivor annuity take a portion of the difference in lifetime benefits to purchase a life insurance policy so that, should the employee-spouse die first, a pool of tax-free money can be available to the survivor. The problem here, however, is that if the family gets into financial difficulties or faces uninsured long-term care, there may not be enough money to fund the life insurance which, in some instances, is allowed to lapse. Another factor to consider is whether the pension is subject to Social Security offsets – that is, reduced by the survivor’s Social Security.

That’s why planning should begin for later life long before retirement -- preferably while we are still in our fifties. The planning should include long-term care insurance and, where appropriate, life insurance while the premiums are less expensive.