Death of a Spouse: The Under-Discussed Risk in Retirement

It often can mean the surviving spouse will be forced to get by on a lower income, but proper preparation can help.

(Image credit: YinYang)

Investing, in general, involves risk. Some of the risks most often discussed are market risk, inflation risk and reinvestment risk. These risks, and others, are present both before and after retirement. However, one under-discussed risk in retirement income planning is the death of a spouse.

The death of a spouse can have a substantial impact on the surviving spouse’s retirement lifestyle. In many cases, it results in a decrease in income for the surviving spouse. Careful planning can help lessen the impact of an untimely death.

Three things to consider:

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Social Security Choices

Determining when to start taking Social Security benefits is an important retirement decision, and the ramifications of that decision can stretch beyond the beneficiary’s lifetime.

  • Why: Starting your Social Security benefit before full retirement age may not be your best option because of the impact an early claiming strategy might have on a surviving spouse.
  • How: At the death of a spouse, the Social Security Administration will review the benefits that were available to both spouses and grant the surviving spouse the larger of the two benefits.
  • Effect: Claiming your Social Security benefit before your full retirement age will reduce your monthly benefit by at least 25%, and possibly as much as 35%, depending on your date of birth and when you start taking distributions. This is a permanent reduction.
  • Alternative: If your full retirement age is 66, you can increase your monthly benefit amount by 32% by not claiming your benefit until age 70. If your cash flow allows for you to delay claiming your Social Security benefit, the extra monthly income from the delayed credits could greatly benefit the surviving spouse.

Pension choices

For those entitled to pension benefits, choosing the correct type of pension distribution is key to protecting your spouse after you’re gone.

  • Why: Many pension plans allow you to choose the type of distribution that is most suitable for your situation.
  • How: A life-only benefit would cease when the pension recipient dies. A survivorship option would pay a reduced benefit, for instance a 50% benefit, to the surviving spouse once the recipient dies. The difference between the two types of distribution is that the life-only option will usually pay a larger monthly benefit than any type of survivorship option.
  • Alternative: One way to help offset the loss of income from either the Social Security benefit or the pension benefit due to the death of a spouse is with life insurance. Under this scenario, a life insurance contract would be written on one or both spouses. Then at the death of the insured, the proceeds received from the life insurance company would be used to create an income stream to help offset the lost income.

Investment choices

When one spouse dies, the other’s needs and goals inevitably change, and that can include the goals for their investment accounts.

  • Why: Assets are a tool to be used to help accomplish a goal. When both partners are living, the goal of the investments may be modest growth to help offset inflation in the future, or it may be to preserve the assets for the next generation. At the death of a spouse the goal of the investment assets, or a portion of the assets, may need to change to an income-focused strategy to help offset the loss of Social Security or pension benefits.
  • Effect: Failure to change the investment assets could result in a change of lifestyle for the surviving spouse, or it could lead to a more rapid depletion of the investments.
  • Caveat: Changing of investment assets soon after the death of a loved one, however, is not recommended. The surviving spouse needs time to grieve and time to adjust to a new life without their loved one before it is appropriate to discuss the new goals of the investment assets.

The loss of a spouse is a difficult and trying time. Proper retirement income planning can help alleviate some of the financial stress the surviving spouse may face. Both partners in the marriage should be educated on the options available and decide which options best fit their situation. Also, a candid discussion about the objective of the investment assets is essential in helping the surviving spouse make appropriate decisions.

Securities and investment advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Craig Hammer, Broker, Investment Adviser
Partner, Prosperity Partners Wealth Management

Craig Hammer specializes in formulating customized client investment strategies utilizing an interactive process which reveals strengths, weaknesses, gaps and plan option solutions.