Dear Quentin,
I was married to my ex-husband for 13 years. He left me for another woman. I was forced to sell our house (a short sale in 2012) and move out of state. In the middle of this storm, I made the rash decision to retire early because I was financially broke.
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Being mentally and emotionally exhausted, I did not want to have contact with my ex, so I chose to receive benefits under the 50% joint and survivor annuity. We divorced in 2014 and he married the other woman that same year. He was then 47 years old. I’m nine years older than him.
I called my pension company to ask if our divorce negates the choice I made, but I was told it doesn’t. Is this true? Can I do anything to change my choice? Thank you for your time and assistance in this matter
The ex-wife
Related: My mother-in-law, 75, is having trouble paying off her $52,000 mortgage and $20,000 HELOC. Should she sell her house or get a reverse mortgage?
Dear ex-wife,
For those unfamiliar with a joint annuity and a survivor annuity, it is an insurance product that provides a lifetime income for as long as one spouse lives. But you essentially divide the value of the annuity you would receive with an annuity, so you receive 30% to 50% less. If you contribute pre-tax dollars and delay withdrawals until your income drops, you’ll likely end up paying less in taxes on those withdrawals.
Your insurance company is, to put it bluntly, the horse’s mouth in this case. But I asked a third party, Brandon Renfro, a certified financial planner at Belonging Wealth Management in Longview, Texas, who doesn’t have good news. “I’m so sorry this happened to you. Unfortunately, once you receive a pension payout, you cannot change the payout choice or the named beneficiary, even in the event of a divorce.”
“While there’s probably nothing you can do about retirement, that’s not the case for other types of retirement accounts you have, like IRAs, 401ks, etc.,” Renfro adds. “If you haven’t already, be sure to update the designated beneficiaries on those accounts or life insurance policies, if you have them.” (Cary Carbonaro, senior vice president and director of women and wealth at Advisors Capital Management, suggests investing the money when you’re back on your feet and don’t need it right away.)
Since you are now about 66, Renfro points out that you may be able to claim Social Security benefits based on his earnings. It is a fair and equitable policy, especially if one spouse has been working part-time or taking a career break to care for children or the household, while the other spouse earns a high salary. You are entitled to up to 50% of the amount of your ex-husband’s Social Security benefits, if they are higher than yours. To be eligible, you must have been married for at least ten years and be unmarried at the time you apply for spousal benefits.
“Generally, an election can be canceled upon death or divorce, or the annuitant has 30 to 90 days from the date of the first regular payment to cancel the election,” says Miklos Ringbauer, a Los Angeles-based CPA. Unfortunately, given the facts you have presented, it most likely cannot be canceled at this time because it has already been canceled and many years have passed without her objection,” he added.
Chronic stress and silver linings
However, cancellation or change options vary by carrier, Ringbauer adds. You can ask your carrier to give you a copy of the cancellation or change options so that you can discuss them with a financial professional or legal advisor to see if you have any options. (The Internal Revenue Service imposes additional rules for annuitants who are not married, which may or may not apply to you. You can read more here.)
It’s a cautionary tale to always consult a tax advisor before making such decisions, but there is a silver lining. If you had been under age 59.5, the Internal Revenue Service would have applied a 10% penalty to your withdrawals, on top of any additional taxes you would have had to pay. For those with a non-qualified annuity, which is funded with after-tax dollars, earnings and interest are subject to the penalty instead of the full amount.
Don’t be too hard on yourself. Nearly half of workers (47%) are retiring early, and many cite reasons like yours, according to a report from the Employee Benefit Research Institute, a nonprofit organization based in Washington, DC. Nearly a third cited financial problems, such as a health problem or disability, while almost a quarter said they were retiring due to changes in their business. You were under a lot of stress at the time.
Sometimes, when we are going through turbulent times, we can make decisions even if they are not in our best interests, giving us the illusion of control. MarketWatch columnist and contributor Mark Hulbert recently wrote a story about some of the reasons people want to retire early. He cited a study by researchers at Cornell and Duke universities that focused on the “psychological ownership” people have over their retirement accounts.
For others going through a difficult time like you have (divorce, death, or taxes), chronic stress can change your brain chemistry and lead to poor decision-making. Mental health professionals say that during stressful periods, blood flow to our brain increases to prepare us for survival mode, but when we are unable to cope with stress, the opposite happens: there is a decrease of blood flow and oxygen to the brain, which can harm health. our cognitive functioning.
You did your best at that moment. Be kind to yourself.
Previous columns by Quentin Fottrell:
‘He was recently taken to the hospital’: My elderly neighbor gave me power of attorney. Can his estranged daughter object?
‘Punishing myself wouldn’t help’: My credit card was stolen – the thief revealed many nasty surprises about my finances
‘We’ve had our ups and downs’: My late in-laws left their estate to me, my husband and our son. Should we hire a lawyer?
