December 11, 2014
Widows Face More Financial Adversity
Two times more widows than widowers say their spouse’s death carried significant negative financial consequences during the first year after their loss.
This sharp contrast recurred in numerous financial questions recently posed to widows and widowers by New York Life. The contrast also seemed to persist across various income levels, in questions revolving around both essential needs and luxuries. Here’s a sampling of answers given by nearly 900 Americans whose spouses have died sometime in the past decade:
Their answers beg the question: Why the divergence?
One reason is certainly that two-thirds of the widows surveyed reported their income was under $35,000, while a majority of the widowers earned more than that. Adults over age 18 were canvassed, so working women’s lower earnings no doubt contributed to the income and lifestyle disparities.
Pension survivor policies also play a role, since two out of three of the people surveyed were over age 65.
Consider Social Security. If the person who died was receiving the larger of the two Social Security checks coming into an older couple’s house, the surviving spouse will now receive that larger benefit. But the death of a spouse also reduces the household’s Social Security checks every month from two to one. This happens both to newly widowed men and women, but the women, who typically live longer than men and tend to be younger than their husbands, are more often the ones who must adjust to paying for the fixed household expenses with a single check.
Widows may also lose out under defined benefit (DB) pension plans for two reasons: because men historically were somewhat more likely to have a DB pension, and because women usually out-live their husbands. A man’s full pension will continue if his wife dies first. But if he dies first, the surviving wife’s pension may shrink dramatically.
Under federal law, the default survivor benefit in a DB plan must equal at least half of the worker’s benefit; the worker and his spouse can change it only if they both agree. But if the couple accepts the default, “the benefit might be $1,300 a month while your spouse is alive. However, when he dies, your benefit would be $650 a month for as long as you live,” warns the Women’s Institute for a Secure Retirement.
Women should anticipate and plan for these financial risks.