How to Safeguard Your Retirement Income After the Loss of a Spouse

When your spouse passes away in retirement, it could have profound consequences for your financial security. It’s imperative to plan ahead for this possibility to ensure you remain financially stable even after the loss of your partner.

Taking these steps early on could help shore up your finances so the death of a spouse won’t leave you struggling for funds for the rest of your life.

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How could the death of a spouse affect your finances as a retiree?

As a retiree, the death of your spouse could affect your finances in a few profound ways:

You’ll lose access to your spouse’s Social Security benefits. Most couples have two Social Security checks coming into the house. When one spouse passes, the surviving widow or widower gets to keep the higher of the two benefit checks either partner was receiving. But this could still mean your income is cut in half if you and your spouse had similar size checks.
You’ll have to pay for funeral costs. These can add up to several thousand dollars.
You could be pushed into a higher tax bracket. Single filers can earn less income before they move up to a higher tax rate. And they can earn less income before Social Security benefits become partly taxable.

If your spouse had a pension from their employer, it’s possible you could lose that money as well, depending on whether there was a survivor benefit or not.

What can you do to be prepared?

Preparing for the death of a spouse needs to start long before someone passes away.

One of the first steps that should be considered is the purchase of life insurance. Life insurance can cover funeral costs and help to ensure the death of a spouse doesn’t lead to financial devastation. This is best purchased at a young age to keep costs down, but guaranteed issue and final expense policies are an option even for older seniors and those with pre-existing health conditions.

It’s also important to be smart about both tax planning and about choosing the best Social Security claiming strategy.

Investing throughout your career in a Roth IRA could ensure you don’t have to worry about a lot of taxable income as a senior since your distributions won’t be subject to tax — nor will they potentially render your social Security benefits taxable. As for claiming Social Security, it’s often best to have the higher-earning spouse wait as long as possible in order to maximize survivor benefits available to a partner that’s left behind.

To make sure the surviving spouse is cared for, it’s also important to ensure both partners have saved as much as possible in a retirement investment account. Having substantial assets reduces the financial consequences of a death, since the money in an investment account should provide plenty to cover funeral costs and render the loss of one Social Security check a minor blip rather than a financial disaster.

Ultimately, by taking these key planning steps, you can ensure whichever spouse lives the longest doesn’t end up spending the rest of their life struggling. It’s definitely worth making a plan to prevent that undesirable fate.

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