Key Takeaways
- A spouse’s death often brings a lasting decline in income, research shows.
- Major financial decisions after a spouse’s death can include when to claim Social Security, how quickly to draw on your savings, and how to account for the change in tax-filing status.
- Delaying major moves and reviewing benefits, withdrawals, and beneficiaries can help protect long-term retirement security.
How a Death Can Change Your Retirement Picture
If your spouse passes away before you, it’s important to understand how that affects your finances. The financial impact can be significant. On average, annual income falls by $5,500 after the death of a spouse and remains at this level for the next two years, according to the Federal Reserve Bank of Chicago. This equates to a persistent decline of 11% in an individual’s annual income.
Here are some things to consider as you reassess and work to protect your future in the wake of the death of a spouse.
Why This Matters
More than one million people lose a spouse each year to death, and the financial impact can be both long-lasting and immediate. Understanding how benefits, withdrawals, and taxes change can help minimize damage to retirement income.
The Risk of Making Big Retirement Changes Too Soon
Allow time and space for grieving your loss. And as you consider your future, one goal is to avoid letting grief drive a financial decision that hurts your retirement, said Stu Bradley, wealth advisor at Hightower in St. Louis.
Ideally, grief won’t emotionally drive decisions to change investments, sell a home, or claim benefits. Instead, Bradley suggests, let any decision be made from a perspective of what is going to support your retirement. “A good retirement is no doubt what your spouse would want for you,” he said.
Bradley recommends against any major financial decisions in the first six to 12 months following a spouse’s death unless absolutely necessary. Instead, review your financial documents, confirm account beneficiary designations, and identify immediate cash needs, he said.
If a death changes the household income from two income streams to one, that will impact a variety of things, such as savings income and Social Security benefits, retirement withdrawal strategies, and tax rates.
Here are some tips to avoid surprises:
- Understand your Social Security survivor benefits before claiming.
- Review retirement withdrawal requirements such as required minimum distribution (RMDs).
- Review the rate at which you draw on your savings.
- Plan for taxes as a single filer.
- Consult a financial expert before making major decisions.
Important
A surviving spouse at full retirement age will receive their own benefits. But if they qualify for more as a spouse, they’ll get a combination of both benefits that equals the higher amount. The Social Security Administration offers a benefits toolkit with details about how survivor or personal benefits work.
What “Staying on Track” Looks Like After a Loss
Staying on track for the long term is doable once you’ve recalibrated your retirement plans to a one-person structure.
Bradley suggests these steps for rebuilding a retirement plan around you:
- Create a simple one-page picture of income sources (Social Security survivor benefits, pensions, portfolio withdrawals).
- Estimate how long assets need to last based on your longevity.
- Check once a year: Is the withdrawal rate sustainable?
“The aim is a calmer, simpler retirement income plan that’s easy to understand in a difficult time,” he said.
And while this may not be the most obvious time for maintaining a positive mindset and monitoring progress toward retirement goals, here are some resources that may help:
- Social Security Administration survivor benefits information
- Internal Revenue Service guidance on filing status
- Estate attorney to help with probate, titling, and updating documents
- Financial planners, searchable on the CFP Board or NAPFA websites
- Area grief support groups or hospice programs that provide financial or administrative checklists
- Trusted peers in your spiritual community
Losing a spouse changes your life and your finances, but a revised retirement plan can still protect your choices and your peace of mind.