When a spouse or life partner dies, it’s only natural that the survivor will be grieving and lonely. To add injury to insult, the survivor usually also experiences a money crunch. And the odds are the survivor will be a woman in her 80s or 90s, when she’ll be less resilient to deal with the challenges.

Like all retirement planning challenges, you’ll do better with a plan! Let’s take a look.

What Is The Retired Widow’s Money Crunch?

The financial challenge for survivors is that their retirement income usually drops significantly after one spouse or partner passes away, yet most of their living expenses don’t change very much. For example, housing expenses are usually retirees’ largest living expense, and these amounts typically continue after one person dies. Think mortgage payments, homeowner’s insurance, property taxes, home repairs and utilities.

As a result, it’s possible that the survivor’s retirement income can no longer support their lifestyle compared to the time when both spouses were alive. It’s critical to learn how all your sources of retirement income will change when one  spouse or partner passes away. Warning: Don’t naively think “if” one spouse passes away, think ”when.”

Why Does Retirement Income Drop When One Spouse Or Partner Dies?

Let’s start with Social Security, which is usually the largest source of retirement income for most retirees. When one person passes away, their Social Security benefits stop.  For married couples, the survivor’s benefit will bump up to the benefit amount of the spouse who passed away, but only if it’s greater than the Social Security income the survivor was receiving on their own. If the survivor’s own benefit is greater than the benefit of the spouse who passed away, then the survivor will continue receiving their own benefit. In any case, only one Social Security benefit continues after a spouse dies.

For unmarried couples, the income of the partner who passes away stops, and there’s no change in the survivor’s Social Security benefit.

Next, let’s consider if there is pension income. In this case, the income to the survivor is determined by the form of payment that the pensioner elected at retirement. A common form of payment for married couples is a 50% joint and survivor annuity; with this form of payment, the pension income cuts in half when the pensioner dies. The only time there’s no change in the pension income is if the pensioner elected a 100% joint and survivor pension at retirement.

The treatment is the same if the retiree purchases an annuity from an insurance company; the income to the survivor depends on the type of annuity that’s purchased at retirement.

Another challenge is when the spouse or partner who passed away was earning income from working; obviously that source of income will stop.

The only sources of retirement income that might not change when a spouse or partner passes away would be income that’s generated by investments. This assumes that the surviving spouse or partner is named as the beneficiary if the account is with an IRA or 401k plan. With other assets, the spouse or partner usually needs to be named in a will or trust document to retain the benefits of the investment.

Strategies To Address The Widow’s Money Crunch 

The next step is to plan for maximizing the income of the survivor while also looking for ways to manage their living expenses.

Here are ideas to provide more financial resources to the survivor:

  • If you haven’t yet retired, then consider electing a 100% joint and survivor annuity with any pension or annuity income.
  • With systematical withdrawals from retirement investments in IRAs or 401k accounts, while both are alive, use a conservative method for determining the regular withdrawal amounts. This allows the accounts to grow as much as possible. When the spouse or partner dies, the survivor can increase the amount that’s withdrawn from remaining assets, if needed to help make up for other decreases in retirement income. The IRS required minimum distribution is one example of a conservative withdrawal method.
  • You could convert any regular retirement IRA or 401k accounts to a Roth, which don’t have required minimum distributions. Then you can let those accounts grow to help the survivor.
  • With investments that aren’t in an IRA or 401k, you can let these investments grow by not tapping them to generate retirement income while both of you are alive. An alternative is to leave the principal intact and just withdraw the interest and dividends to pay for living expenses while both are alive.
  • If you own any life insurance, keep that insurance in force so that the survivor can use the proceeds to generate retirement income.
  • If you own a home, consider maximizing the home equity by paying off the mortgage and resisting the temptation to take out a reverse mortgage.

You’ll also want to look for ways to manage the living expenses of the survivor. For most retirees, housing is the largest living expense, even if the mortgage is paid off. Downsizing to reduce housing expenses can be one strategy to help mitigate the financial stress of the survivor. However, don’t wait too long to downsize; you’ll want to be sufficiently vital to make the move.

You’ll also want to examine how the survivor can manage other living expenses, such as car expenses, travel, entertainment, and support to family members.

There are enough emotional stresses on the survivor when a spouse or partner dies. Mitigate the strain by planning ahead to make sure they’ll be OK financially. It’s one important way to show how much you love them.