What Happens to Your Income After the Death of a Spouse?
What Happens to Your Income After the Death of a Spouse?
Today, I want to talk to you about something that, well, it’s not really that fun to talk about, but it’s very important and it’s often a major concern for married couples in retirement. And that is what happens to your income when one spouse passes away. Now, statistically speaking, you’re probably not both going to pass at the same time.
Okay. In fact, here in America, the average life expectancy for a man is about 76 years old. And for a woman, it’s about 81 years old. Okay, so what happens when one of you dies before the other one in regards to your income in retirement? That’s what I’m going to talk about today. So let’s go over three big changes that you’re going to see.
Number one, your Social Security is going to drop okay. Now the good thing about Social Security though is that the surviving spouse actually gets the higher of the two benefits. So let’s say that you’re in a household where one spouse, they were the breadwinner, they had the higher income and so forth, and their benefit was $3,000 a month.
And then maybe the other spouse, they were stay at home, they didn’t have the higher earned income. And so their benefit is just $1,500 a month. So as a household, their total social Security benefit is $4,500 a month. Well, when one passes away and it doesn’t matter which one does pass first, the surviving spouse will get to keep the $3,000 benefit, but the 1500 will drop off.
Okay, so how do you plan for this? Right. Well, there are different strategies that you can, kind of deploy early in retirement to account for this. One strategy is what we call the surviving spouse strategy, and it applies to when we actually start to take your Social Security benefits. For some people, it makes sense to delay the higher of the two Social Security benefits for as long as possible to account for and protect that surviving spouse.
Okay, but again, not every situation is going to warrant that. Now, another big change that you’re going to see when one spouse passes away is potentially on the tax side. Okay. So the married bracket is a little more gracious okay. They have higher income thresholds. So let’s say that you’re one where you’re comfortably, in a 12% bracket when you know, both are living.
Well, when one passes that threshold for the 12% bracket actually drops. Okay. And so you might find yourself in a situation where if income remains relatively the same, other than, you know, the dropping off of the lower Social Security benefit, you could be bumping up into the next tax bracket as a single filer now. Okay. Other things that, you know, remain or do change is the standard deduction.
Okay. As a married couple, the standard deduction is quite high. And then when you go to a single filer that standard deduction reduces or drops quite a bit. Okay. Now there are different tax strategies that we can implement prior or early in retirement to kind of help control income. If this situation were to arise, some of those strategies could be opening multiple different types of retirement accounts.
Doesn’t all have to be pretax accounts. We can also look at doing Roth conversions early in retirement to account for this, and allow us to really control our income if this situation were to happen to you. And then finally, another big change is going to be those expenses. I know a lot of people think that, okay, when one spouse passes, expenses should drop by 50%, right?
Well, that’s just not statistically the case. In fact, what we have found is that expenses really drop only by about 15 to 25%. And when you think about it, it kind of makes sense, right? I mean, if you’re still paying a mortgage payment, car payment, property taxes, utilities and so forth, those don’t really change much. When one, one, one person passes away.
Okay, yes. You probably might not be going out to eat as much or spending as much on travel and so forth. But really, it doesn’t reduce your expenses by 50% like some people think. So that’s something that you really want to, plan for as well. Okay. Your expenses are probably going to remain relatively similar. Yeah, drop a little bit, but don’t think that, hey, when one person passes automatically, 50% of your expenses are gone.
Okay? And this is something where, you know people maybe you’re not you haven’t thought about this, or maybe it’s one of those big concerns for you. Okay. Do you have a plan in place? Do you have, you know, thoughts about this and maybe you’re planning for okay, what happens if one spouse passes before the other? If you don’t,
hey, reach out. Give the number on the screen a call, schedule a free, no obligation consultation, so we can help you plan to retire well.