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Losing a spouse, whether through death or divorce, is a painful and difficult event that catches many retirees financially unprepared and unsure of where to turn. While it’s a tough discussion to have, the conversation must be addressed because there are critical financial implications of losing a spouse. According to the National Institute on Retirement Security (NIRS), 80 percent of women die single and are more likely than men to be impoverished at age 65 and older. You don’t want to be contributing to the these statistics because you didn’t plan to navigate your latter life stages as a single person, which is why you need to plan now or pay later because the death of a spouse is one of the retirement risks that’s rarely talked about.

The Impact On The Retirement Lifestyle

Most people think that their expenses will decrease when they lose a spouse, but that’s hardly the case. “I recently met with a widow whose meals and entertainment expenses were much higher than before and she started getting concerned because she felt like she was spending more and was worried she would run out of money,” said Author and Founder of Woman’s Worth^® Jeannette Bajalia. “Her expenses increased because she didn’t want to sit at home and eat alone, so she used meals as a means of entertainment with friends.”

Along with lifestyle modifications, there are often self-care expenses associated with the need for the now single spouse to pull themselves back together that most people don’t think about, such as mental health counseling, changing legal documents, any many more. Financial advisors usually ignore these lifestyle expenses and only focus on market risks, including investments and financial products, when it comes to planning the rest of the survivor’s retirement. Since the team at Woman’s Worth is all about lifestyle protection planning, we make sure you understand all of the retirement risks, as well as market risks, of losing a spouse either though death or divorce so you are prepared.

Hidden Risk: Taxes

When you lose a spouse either through death or divorce, you’ll move from a married filing jointly tax status to a single tax status. The impacts of changing your tax status may not seem like a big deal at the time, but how you proceed will greatly determine your financial outcome and wellbeing. Here is a typical example of what a widow or widower will deal with after losing their spouse:

• John’s social security income is $20,000 and Sally’s is $10,000. To meet their lifestyle needs, they need $30,000 in IRA distributions from their savings. Looking at this scenario, their Federal Income tax due is $988.
• John passes away, but the survivor still needs the same amount of income ($60,000) annually to maintain their lifestyle.
• The survivor (Sally) gets to keep the higher of the two social security benefits, which is $20,000. However, Sally needs to take $40,000 out of her IRAs to meet her lifestyle needs.
• The Federal Tax due on Sally’s return as a single is $5,357. That’s a 442% increase in taxes due just to maintain the lifestyle she had.

Protect Your Retirement Lifestyle With Woman’s Worth^®

Woman’s Worth^® understands that success in retirement has more to do with tax planning and managing the costs of your lifestyle, rather than with investments and financial products, whether you’re single or married. We invite you to come visit our team and let us help you navigate through the retirement planning process and understand the impacts of losing a spouse either through death or divorce during retirement. Call now at (904) 824-5656 or click here to schedule a free consultation. You have nothing to lose, but a lot to gain!