Four Financial Challenges of Losing a Spouse in Retirement - Rodgers & Associates

Four Financial Challenges of Losing a Spouse in Retirement

Loss of a spouse is always a very difficult and life changing event. But for a married couple in retirement, death of one partner can be finan­cially devas­tating as well. Think of yourself as the surviving spouse in this scenario. You will face financial challenges in several key areas:

Reduced Monthly Social Security Income. You will receive a onetime benefit of $255 upon the death of your spouse and then the monthly adjustment of your own Social Security benefit. You will receive the equiv­alent of the greater of the two current Social Security checks. This should happen quickly. In most cases, the funeral director will report your spouse’s death to Social Security. Reporting immedi­ately is for your own good because if you delay you must return your spouse’s Social Security benefit for the month of death and any later months. Think about the financial impact of losing the equiv­alent of one Social Security check. You could easily lose $12,000 in income, or $1000 a month.

Potential for Reduced Pension Income. If your spouse had a pension, he or she may have selected a Joint and Survivor option. In that case you would receive 25%, 50%, 75% or hopefully 100% of the pension amount received by your spouse during his or her life. But in some cases, the pension stops at death. This is another income reduction on top of what we know about Social Security.

Portfolio Shrinkage. You may find that your available assets have declined if your spouse had an extended nursing home stay. This can be avoided with some advance planning in the form of Long Term Care Insurance, purchased in your late 50s or early 60s.

Higher Tax Bracket. After your spouse has died and you have reclaimed some stability, ask your tax profes­sional to prepare a tax projection for the year following the death. You can still file Married in the year your spouse dies, but typically in the year after the death you will file Single. For 2015, the 15% tax bracket for Single tops out at taxable income of $37,450. This can have a big effect on the amount of federal income tax you will pay. The unfor­tunate truth is that widows and widowers often have reduced income and increased federal taxes.