The Overlooked Risk Many Couples Face in Retirement

Many couples approach retirement planning with a shared financial picture in mind. Income, savings, taxes, and expenses are often modeled based on two people moving through retirement together.

But there is an important transition that can dramatically change that financial landscape.

When one spouse passes away, the surviving spouse often moves from filing taxes jointly to filing as a single taxpayer.

This shift can have significant consequences.

The tax brackets available to single filers are narrower than those available to married couples. That means the same level of income may push a surviving spouse into higher tax brackets more quickly.

At the same time, several other financial factors often remain unchanged.

Required Minimum Distributions from retirement accounts may continue. Social Security income may still be present, though it may change depending on survivor benefits. Investment income may remain largely the same as well.

The result is that the surviving spouse can find themselves with similar income levels but a different—and sometimes less favorable—tax structure.

This dynamic is often referred to as the “widow’s penalty.”

It isn’t a penalty in the formal sense, but rather the result of how the tax system treats individual filers compared with married couples.

For this reason, many retirement plans benefit from considering not only how income and taxes work while both spouses are alive, but also how the financial landscape may evolve later in life.

Planning for these transitions early can provide more flexibility and may help reduce surprises during an already difficult time.

This article is for informational purposes only and not tax advice. Always consult your tax preparer for guidance specific to your situation.

LynnLeigh & Company - A Registered Investment Advisor This information is provided by LynnLeigh & Co. for general information and educational purposes based upon publicly available information from sources believed to be reliable – LynnLeigh & Co. advisors cannot assure the accuracy or completeness of these materials. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.   Past performance is not a guarantee of future returns.

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