Dear Quentin,
I was married to my ex-husband for 13 years. He left me for another woman. I was forced to sell our home (a short sale in 2012) and move out of state. In the middle of this storm, I made a hasty decision to take early retirement as I was financially broke.
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Because I was mentally and emotionally drained I did not want to interact 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 47 at the time. I am nine years older than him.
I have called my pension company to find out if our divorce nullifies the choice I made, but I was told it can not be. Is this true? Is there anything that can be done to change my choice? Thank you for your time and assistance in this matter
The Ex-Wife
Dear Ex-Wife,
For those who are not familiar with a joint and survivor annuity, it is an insurance product that provides a lifetime income as long as either spouse lives. But you are effectively splitting the value of the annuity you would receive with a single-life annuity, so you will receive anything from 30% to 50% less. If you contribute pretax dollars and delay withdrawals until when your income has declined, you would likely end up paying less tax on those withdrawals.
Your insurance company, to put it bluntly, is the horse’s mouth in this case. But I asked a third party, Brandon Renfro, a certified financial planner with Belonging Wealth Management in Longview, Texas, who does not have good news. “I am so sorry that happened to you. Unfortunately, once you have begun receiving a pension payout you cannot change either the payout election or the named beneficiary even in the event of a divorce.”
“While there is likely nothing that can be done about the pension, that isn’t the case for other types of retirement accounts you may have like IRAs, 401ks, etc.,” Renfro adds. “If you haven’t already, make sure you 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 if you are back on your feet and don’t need it right away.)
As you are about 66 now, Renfro points out that you may be able to claim Social Security benefits based on his earnings. It’s a fair and equitable policy, especially if one spouse had taken part-time work or took a career break to look after children or household affairs, while the other spouse earned a high salary. You are entitled to collect up to 50% of the amount of your ex-husband’s Social Security benefits, if they are greater than yours. To qualify, you must be married for at least 10 years, and be unmarried at the time of your application for spousal benefits.
“Generally, cancellation of an election may be done when death or divorce occurs, or the annuitant may have 30 to 90 days from the date of the first regular payment to cancel the election,” Miklos Ringbauer, a Los Angeles-based CPA. Given the facts you presented, unfortunately, it most likely cannot be canceled at this time as it has been already annuitized, and many years have passed without her objection,” he added.
Chronic stress and silver linings
However, cancellation or modification options do vary by carrier, Ringbauer adds. You could request that your carrier gives you a copy of the cancellation or modification options so you can review it with a financial professional or legal counsel to see if you do have any options to take. (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 cautionary advice to always consult a tax adviser before making such decisions, but there is a silver lining. If you had been younger than 59½, the Internal Revenue Service would have applied a 10% penalty on your withdrawals, which would have been in addition to any extra tax 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 rather than the entire amount.
Don’t be too hard on yourself. Nearly half of workers (47%) retire early, and many cite reasons just like yours, according to a report by the Employee Benefit Research Institute, a nonprofit based in Washington, D.C. Nearly a third cited a financial hardship, such as a health problem or disability, while nearly a quarter said they retired due to changes at their company. You were under a great deal of stress at the time.
Sometimes, when we are going through a turbulent time, we can make decisions, even if they’re not in our best interest, which give us the illusion of control. MarketWatch columnist and contributor Mark Hulbert recently wrote a story about some of the reasons people wish 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 experienced — divorce, death or taxes — chronic stress can alter your brain chemistry and lead to poor decision making. Mental-health professionals say blood flow increases to our brain during stressful periods to prepare us to enter survival mode, but when we are unable to manage stress the opposite happens: there is a decrease in blood flow and oxygen to the brain, which can impair our cognitive functioning.
You did the best you could at the time. Be kind to yourself.
Previous columns by Quentin Fottrell:
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