Retirement is often the last major stage of life. Many people look forward to no longer having to work.
Sadly, there will come a time in retirement that no one wants to face.
If you’re married, you'll have to face the possibility of the death of your spouse in retirement.
The emotional impact is impossible to quantify. The financial effect, however, is something for which you may prepare.
Here’s what you need to know about how to deal with the death of a spouse in retirement as widows or widowers.
How Death Impacts Social Security Benefits
You’ve lived your entire retirement getting both you and your spouse’s Social Security benefits.
One of the biggest questions facing a surviving spouse:
What happens to Social Security retirement benefits?
Unfortunately, you won’t keep getting two Social Security checks every month.
A single Social Security payout
Instead, you’ll receive only one Social Security benefit going forward.
But, the amount of your benefit checks that Social Security will pay you could change.
As a spouse, you can collect 100% of the benefit of your deceased spouse if you were married to your spouse for at least nine months at the time of their death.
If you already receive benefits based on your deceased spouse’s work record, the change to survivor benefits may take place automatically.
If it doesn’t, contact the Social Security Administration by phone or in person to apply for survivor’s benefits.
Claiming survivor benefits before full retirement age is possible, but will reduce your benefit. You can claim as early as age 60 but your benefit may be reduced to 70%.
Additionally, when your spouse started claiming their benefits will impact the survivor’s benefit amount, as well.
If they started claiming benefits early, your benefit will be based on that reduced amount.
Thankfully, becoming a surviving spouse doesn’t require you to take the survivor benefit.
The surviving spouse can continue claiming their own benefit if it is higher than the alternative.
What Happens to My Spouse’s Pension Benefits?
If your spouse gets a pension benefit, the death of a spouse can have a major impact.
With that said:
Each pension has different rules whether the pension gets paid to a spouse in the event of death.
Sometimes, your spouse has an option to choose whether to receive a higher benefit that stops when they die or a smaller benefit that can be passed to you upon death.
Other times, there is only one benefit that works one way.
Check with your spouse’s pension paperwork to see how their pension works upon their death.
If it stops and doesn’t pass to you, it could result in a major loss of income.
For that reason, you may want to consider purchasing life insurance to cover the missing income.
What Happens to Their Assets?
What happens to your deceased spouse’s assets isn’t as straightforward as Social Security benefits or pensions.
It depends on many factors including the laws of the state where you live, your estate planning and more.
You and your spouse have an updated will that shares exactly what will happen to your assets.
This can make sure assets pass to the surviving family as intended. Without a will or other estate planning documents, things can get complicated.
In general, anything in both you and your spouse’s name will transfer directly to you.
- bank accounts
- investment accounts
- real estate
You may have to fill out paperwork to make the transfer official, but in general you will receive these assets.
Assets solely in your spouse’s name when they die can get tricky. The laws in each state vary widely.
Assets may pass to the spouse, your children or even your parents if they’re still alive.
Additionally, some assets require beneficiaries to be designated.
In these cases, it’s very important to keep the beneficiary information updated. If you don’t, the assets may not end up where you want them.
Things get even more complicated if you or your spouse have had previous marriages. If children from previous marriages are involved, things can get ugly, fast.
Get a lawyer
Due to the number of complexities and potential situations, you should check with a professional in your state.
They can help you figure out how assets will pass in your situation.
They can set up the necessary documents to have assets pass as you and your spouse want them to.
What Happens If You Get Remarried?
Getting remarried after a spouse dies in retirement can have financial impacts on your retirement.
If you’ve retired early and are under age 60, remarrying could cause you to lose the ability to claim your previous spouse’s Social Security survivor’s benefit.
If you remarry at or after age 60, you should still be able to claim this benefit.
Getting remarried in retirement could impact other benefits, as well. If you receive a pension or annuity as a surviving spouse, check to see if remarrying may affect it.
In some cases, it may cause the pension benefit payout to stop.
In this case, it may make sense to not get remarried legally.
What Happens to Your Taxes?
Another major factor you’ll need to consider is what happens to your income taxes as a result of your spouse’s death.
Like everything with taxes, it’s complicated.
Change in marrital status
Tax status is typically determined by your marriage status at the end of the year.
- If you were single all year but got married on December 31st, you’re considered married for the whole year.
- If you were married the whole year but got divorced on December 31st, you were single for the whole year.
However, when a spouse dies, things are different.
In the year when a spouse dies, a widow or widower may use the married filing jointly or separately status.
There is an exception if you remarry before the end of the year in which your spouse died. In this case, you’d have to file a joint tax return with your new spouse.
You’d also have to file a separate return for your deceased spouse with the married filing separately status.
In a rare case for most traditional retirees, you may qualify for a special tax status.
This status is called qualifying widow or widower with dependent child.
Qualifying widow or widower with dependent child
This status may apply for the two tax years after your spouse dies.
You must have a qualifying child living with you to claim this status.
It is beneficial because it gives you access to the married filing jointly tax rates, tax tables, and standard deduction.
So why does it matter what status you claim on your tax return?
It has a bigger impact than you might think.
First, the standard deduction for married filing jointly is $24,400 in 2019.
This is double the standard deduction for filing single in 2019, which is $12,200.
Every dollar of standard deduction lowers your taxable income. This, in turn, lowers the amount of tax you owe.
Different tax brackets
Next, those filing married filing jointly have a different set of tax brackets than those filing single.
While the tax rates are the same for every tax filing status, the income subject to each tax rate is different.
For instance, the 10% tax bracket applies to taxable income up to $9,700 for single filers. For married filing jointly filers, the 10% tax bracket applies to taxable income up to $19,400.
This seems fair so far.
For these specific examples, married filing jointly is double the single amounts. This doesn’t apply to every tax provision for these statuses, though.
Even so, the potential problem comes when a spouse dies.
When a spouse dies, certain income will be lost. You won’t get two Social Security checks anymore. You may lose pension income.
However, if you’re mainly funding your retirement based on your investments, those investments may not get cut in half when your spouse dies.
Instead, you still have the same amount of investments. They give you the same amount of income.
The key is:
If you have to file single, your taxes owed will suddenly shoot up based on the same amount of investment income.
Take a close look at all of your retirement income streams so you can accurately plan what would happen to taxes if a spouse died.
If your retirement income mainly comes from assets you own, your surviving spouse could have to pay a lot more taxes after they lose access to the married filing jointly tax status.
Plan Today So You’re Prepared
Make a plan for how a surviving spouse will survive on their remaining retirement income should the worst happen.
One way to help is planning to live longer than your life expectancy.
This helps to make sure your spouse can survive financially without you as it should build some buffer in your calculations.
Don’t wait to plan for the death of a spouse in retirement until it is too late. Get your estate planning documents in order today.
That way there will be no question what happens to you or your spouse’s assets when one of you passes away.