I live in an age 55+ community in Florida and have observed conversations among residents (primarily women) who are mentally preparing for widowhood. They know the statistics about women outliving men and have done the math. This is especially true for those who are younger and have better health habits than their husbands.
A few have plainly
stated “as soon as he dies, I’m outta here,” to reduce expenses or to live
closer to family or in a lifecare community or assisted living facility.
This post
describes five changes in income and expenses that widowed persons can expect:
Reduced
Income- I heard this example at a recent seminar. A married
couple has four monthly income streams: $2,500- husband’s pension, $2,000-
husband’s Social Security, $800- wife’s pension, and $1,500- wife’s Social
Security for a total of $6,800 ($81,600 annually). If the husband dies first,
the wife is left with $1,250 (50% of husband’s pension), $800-wife’s pension,
and $2,000 (highest Social Security) for income of $4,050 ($48,600 annually).
This is a 40% “haircut,” which some couples cover with spousal gifts,
annuities, and/or life insurance.
If the wife dies
first, the husband might receive a higher pension benefit because there will no
longer be a reduction for spousal benefits. The wife’s pension and Social
Security would go away, however, which could still result in a decrease in
household income. For simplicity, this example did not include savings like
IRAs, which would provide an additional income source.
Reduced
Expenses- Monthly expenses will likely decrease when one
spouse passes away. Some estimates project a 20% to 30% drop, which can help
offset a drop in income. A car might be sold, thereby reducing costs for loan
payments, gas, and auto insurance. In addition, less food is needed and the
cost of the deceased’s health insurance ends. Entertainment and travel expenses
may also decrease when a surviving spouse loses their “traveling companion.”
Tax
Considerations- Income taxes often increase for the
surviving spouse, who will be filing a tax return as an individual instead of
as a married couple filing jointly. Single taxpayers have lower income ranges
for each of the seven marginal tax brackets
currently in effect as well as lower income “triggers” for tax on Social
Security benefits, the Medicare premium surcharge called IRMAA (income-related
monthly adjusted amount), and the net investment income tax.
Changes in Housing-
Widowhood often precipitates a change in housing if the surviving spouse feels
that the marital home is too large to maintain or too expensive to afford on
one income. Other rationales for moving include wanting to live closer to, or
with, family members and the need for care in an assisted living facility or
continuing care retirement community.
New Household Expenses-
New household expenses are common to provide services that a deceased spouse
performed previously. Examples include lawn mowing, tax preparation, and
driving to an airport. In addition, older widowed persons who live alone may
decide to get a medical alert system or a monitoring service that checks in on
their well-being daily.
This post provides
general personal finance or consumer decision-making information and does not
address all the variables that apply to an individual’s unique situation. It does
not endorse specific products or services and should not be construed as legal
or financial advice. If professional assistance is required, the services of a
competent professional should be sought.
