Protect Yourself from Old Age Economic Insecurity

How to plan ahead for a secure retirement when your spouse dies.

Jason Hull
Jason Hull

It is fairly well known that, on average, women outlive men. What isn’t as widely covered is that once the men pass, there is a significant economic gap, leaving surviving widows hanging on a financial precipice. A study of Census Bureau data shows that over 50 percent of women over 65 do not have sufficient financial resources to survive the deaths of their spouses.

There are some major causes for this financial insecurity:

  • Women suffered from wage inequality over the years, meaning that they both earned less over the course of their lives and also qualified for smaller pensions. Thirty-one percent fewer elderly women have pensions than their male counterparts.
  • Because of the lower wages, they also qualify for lower Social Security payments. When the husbands die, the larger portion of Social Security income goes away. Conversely, when the wives predecease their spouses, husbands suffer a lower loss of income.
  • Don't let the death of a spouse increase your financial insecurity.
    • Since women live longer, they have a longer time to incur expenses. They face a double whammy of lower income and higher total expenses.
    • Economies of scale decrease. There are economic benefits to marriage, such as sharing housing costs and, to an extent, transportation costs. However, rents, mortgages, and car and maintenance payments are often constants.
    • Unfortunately, while identifying the problem, the aforementioned study doesn’t actually make any suggestions for how to fix the problem. Certainly, the closing of the gender wage inequality gap will help, but that gap is not closed now. Here are a few steps couples looking at retirement can take to address potential economic insecurity that a survivor spouse—widow or widower—might face.

      • Model out the loss of Social Security payments for the higher wage earning spouse. If your retirement plan and withdrawal rate can withstand the loss of the higher Social Security payment without raising the risk of running out of money, then you are in good shape. If it cannot, then you may need to adjust your expenses to reach a safe withdrawal rate.
      • Consider a joint and survivor annuity to ensure a stream of payments that lasts for the lifetime of the longer-living spouse. These will be more expensive, meaning that the same amount of money will buy a smaller income, but payments will be a guaranteed income for two lives rather than one.
      • Examine taking Social Security early, particularly if one or both spouses have a family history that causes them to have a lower life expectancy, or if one or both spouses are chronically or terminally ill. Social Security payments, unlike long-term care or life insurance, does not require passing a physical, so if there is a lower life expectancy, then getting as many payments as possible may be a better alternative than trying to wait for a higher payment. The breakeven for Social Security is generally around 78, although it is dependent on several factors, so if one or both spouses do not expect to reach that age, there is no point in delaying receiving Social Security. Save the excess income to pad the nest egg.
      • Too often, couples model out the expected bump in income provided by Social Security but fail to account for the subsequent drop after one spouse passes. While research shows there is a 20 percent increase in the risk of dying within a year for the surviving spouse, the vast majority of surviving spouses do just that—survive. They need to prepare for the high likelihood that one will outlive the other and will have to deal with a decline in income not matched by a similar decline in expenses.

        Jason Hull is a candidate for the CFP(R) Board’s certification, is a Series 65 securities license holder, and owns Hull Financial Planning.