Wealth Stays Stable Until One Spouse Dies

Being married is good for wealth, until one spouse dies. A study found retired couples experience stable to increasing assets, but near the time and after one of the two spouses dies, wealth declines.

Being married is good for wealth, until one spouse dies. A study found retired couples experience stable to increasing assets. This holds true across wealth levels, including those with low levels and high levels of wealth. Near the time and after one of the two spouses dies, wealth declines.

End-of-life medical costs are a big reason why. The researchers behind the retirees’ savings tabulate out-of-pocket medical spending plus death expenses as totaling approximately $20,000 during the year one spouse dies.

Income is also reduced after the death of the one spouse. Couples in which the husband dies first at age 80 experience a 40% decline in income. If the wife dies first (also at an assumed age of 80), income declines by 30%. The reason is the loss of spousal benefits from Social Security or loss of a pension. When both spouses are alive, two streams of income are received. When one spouse dies, the stream is reduced to either the surviving person’s benefit or the survivor benefit, if the lower-earning spouse is the one who survives.

The researchers who authored the study gave two examples. If Social Security spousal benefits are paid, the couple receives both the high earner’s benefit plus a spousal benefit equal to 50% of the higher earner’s benefit, which equates to 150% of the higher earner’s benefit (100% + 50% = 150%). If once spouse dies, the benefit is reduced to the higher earner’s benefit, which would also be the survivor’s benefit, for a 33% drop in income (100% ÷ 150% = 67%). If both the husband and wife receive equal benefits, then the stream of income falls by 50% (100% ÷ [100% + 100%] = 50%) after one spouse dies.

The decline in wealth is even greater when the second spouse dies. The researchers approximate a $110,000 decline for wealthiest widow(er)s and an approximate $70,000 decline for those in the bottom income category. Part of this may be due to nursing home care. Usage of nursing care is higher for those who are older and for those who are single.

Source: “Couples’ and Singles’ Saving After Retirement,” Mariacristina De Nardi, Eric French, and John Bailey Jones, Michigan Retirement Research Center, July 2015.