You likely have someone dependent on your income to live. While this is usually a spouse, it can also be an adult child, grandchild, or anyone else who relies on you for support. When you die, they are going to need something to replace your income, even if you are retired.
When a spouse dies, one Social Security check goes away
Social Security is most retirees’ main income source. When a spouse dies, one Social Security check is also going to stop.
If the couple are both claiming on one spouse’s earning record, with the other spouse getting half their check, the smaller check is going to go away.
For example, we have a couple Bill and Mary who receive $4,500 every month from Social Security. Bill’s check is $3,000 based on his earnings record. Mary claimed on Bill’s record as his spouse, so she receives $1,500 a month. (You can read more about Social Security spousal benefits here)
If Mary dies first, Bill will continue to receive his $3,000 check. If Bill dies first, Mary will start to receive the $3,000 check instead of the $1,500 one. In both cases though, they lose $1,500 in income they had coming in every month.
If both spouses are claiming on themselves, the surviving spouse can also continue to get the larger check, but it is not automatic.
For example, we have a couple Paul and Michelle. Both of them worked their entire lives, so they both claim Social Security on their own record. Paul is getting $3,000/month and Michelle is getting $2,500/month.
If Paul dies first, Michelle can get Paul’s $3,000 check, but she has to apply for survivor benefits. She will still lose the $2,500 check. If Michelle dies first, Paul will only receive his $3,000 check every month.
Many people do not plan for this immediate loss on income when a spouse dies. When Social Security makes up a large piece of your monthly income, this can be a huge hit to the surviving spouse.
When a spouse dies, their pension goes away
Another large source of income for some retirees is a pension.
If the deceased spouse was receiving a pension, there is a possibility this could go away as well. Many pensions have survivorship options that you can elect.
In these cases, you can choose a single-life plan, which is where you get a larger check for your lifetime that stops when you die.
You can also choose a joint-and-survivor plan. With this, your monthly check is reduced, but the check will continue to pay out to your spouse after you die.
This decision is heavily reliant upon each couples age, health, and life expectancy, but whatever choice you made, you need to make sure you account for this in your plan for the surviving spouse.
When a spouse dies, their paycheck goes away
In today’s world, a lot of retirees choose to continue to work part-time or on the side. If the deceased spouse was still working, that is another immediate loss of income, much like Social Security.
When one spouse dies, the bills stay the same
We’ve already gone over how income can disappear when a spouse dies, but many people assume the cost is cut in half as well since you are only paying for one person. This is a false narrative.
For most couples, the bills are going to remain around the same whether you are supporting one or two of you. The mortgage payments do not decrease, the utility payments don’t decrease significantly, and you still need to buy necessities. So how do you make sure the surviving spouse has enough to pay for all this?
How do I fill the gap in income when a spouse dies?
Life insurance can fill the gap, specifically whole life insurance, which is life insurance that you cannot outlive.
We recommend a minimum of $25,000 of whole life insurance to every person. You can see how we got to that number here, but know that this is only estimated to cover 6-12 months of the loss income.
Many people will need a little more than this to make sure they can keep paying the bills.
Even if you have some health conditions and are in your 60’s, 70’s, or even 80’s, there are products out there that you can purchase to protect your loved ones and fill in the income gap after you pass.
Cardinal can get you quotes and look into what you need to protect your spouse and loved ones.