Planning Ahead for Widowhood: Changed Income and Expenses

 

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.