Planning for Retirement After a Spouse Dies

Asking unpleasant but important questions about financial matters can ease retirement stress.

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It's a question nobody wants to think about, much less answer: How would the death of your spouse affect you financially?

Despite the question's unpleasantness, a new survey by the Hartford Financial Services Group and the MIT AgeLab suggests that asking it, and having an answer for it, can make a big difference in how prepared seniors are for becoming widows or widowers. "We see this pattern of widowed women facing financial challenges later in life," says Maureen Mohyde, the Hartford's director of corporate gerontology. Advance planning can go a long way toward mitigating later financial stress, she says.

According to the research, couples that fare best financially are the ones who divide up their financial tasks so each spouse is in charge of part of them, a strategy the researchers dub the "divide and conquer" approach. Only about 1 in 10 respondents fell into this category, while just over half were "joined at the hip," where both spouses were equally involved in all parts of financial management and every decision was made jointly. Around one third of couples used a "driver and passenger" approach, with one spouse in charge of financial matters and the other taking a back seat.

The "divide and conquer" couples were most likely to save more money, develop a financial plan for the surviving spouse, and enjoy retirement more than they expected.

These couples were most likely to have answered the three important questions related to the illness or death of a spouse:

  1. If my spouse were to die, how would that affect the household's income?
  2. What would an expensive illness do to retirement savings?
  3. If either spouse were to die, would the survivor be prepared to take over management of the finances?

(For happier conversations, couples can also benefit from discussing where they want to live and what they plan to do during retirement.)

"It can be very challenging, especially for women. On average, women experience a 50 percent decrease in income upon becoming widowed and only a 20 percent decrease in expenses," Mohyde says. According to the Government Accountability Office, 12 percent of women over 65 are living in poverty, compared with only 7 percent of men. For divorced and widowed women, the poverty rate is higher, at 21 and 15 percent, respectively.

Planning by taking out life and long-term-care insurance can make a big difference, Mohyde says. "These are not real sexy solutions," she adds. "It's just getting people to think in advance."