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I read this article from Kiplinger online about the four ways couples should prepare for the Widow’s Penalty.
https://www.kiplinger.com/taxes/tax-planning/how-to-prepare-for-the-widows-penalty
The article states that in an unfortunate twist of the tax system, losing a spouse may trigger a huge financial hit called the widow’s penalty. The good news – you can plan for it. It is a good read. Your thoughts and your plan.
It’s been seven years since my spouse died unexpectedly. I would agree that there is a time when a widow(er) is most “financially vulnerable”, and it can last much longer than one might imagine.
The first (and only) hard discussion for us came a decade earlier, as we each anticipated the ever-rarer workplace pension. To establish a 100% survivor’s benefit required a notable reduction in benefit, with smaller hits for a 75% or 50% survivor’s benefit. We agreed to each offer the other a half pension. My spouse retired early and took the hit for a 50% survivor’s benefit. When I started my pension, I took a similar hit. So, when he died, instead of our family losing his whole pension, we lost half. Having half has helped, since the expenses for our family barely budged (house costs the same plus inflation, college for kids costs the same plus inflation, etc.) My Social Security benefit based on my own earnings record exceeded what I would have got as a spousal benefit (not always the case) so becoming a widow made no change to that beyond no “who files first” decision to let my calculated benefit ride and build 8% a year to age 70 while still collecting something off his record (he collected Railroad Retirement not Social Security, complicating matters around survivor’s annuities and distinctions between these two retirement systems.)
To me, a 50% survivor’s benefit is more valuable than any lump-sum term life insurance policy, as one’s thinking can be muddled in early widowhood. A lump sum can be misspent easily, while an annuity/pension trickles along and mistakes can be made and corrected without derailing one’s financial future.
To the degree that younger workers contribute to Roth IRAs instead of traditional IRAs, more women are collecting off their own employment history, and traditional pensions cover a decreasing segment of the workforce, some elements of the so-called widow’s penalty vanish. IRMAA bracket compression is still tricky, as cliff brackets mean a single extra MAGI dollar at the margin can bump the premium up $120 a month. But that only happens if one is retiring with more income than three-quarters of the population, so plenty okay enough already in most people’s thinking.
The Bernstein piece Michael1 linked also includes this great line: “the actual U.S. income tax structure is a hot mess”. There isn’t one-size-fits-all advice for those worried about the possible future life of their widow(er). Best to make the most of each day you are a couple, and be grateful for the chance to share this moment with someone you love and who loves you.
The fourth to do in the Kiplinger article is not advice to widow(er)s per se. Everyone needs to “keep the portfolio working”, that is, recognize that some people live longer. In fact, once widowed, the planning horizon decreases. One of two people will more likely live past 90 than any particular person. This can be seen in the IRS’s own Life Tables I and II: 19.6 more years for a single 69 year old, but 24.3 more years for one of two persons, both aged 69 today. https://www.irs.gov/publications/p590b#en_US_2025_publink100090290 Some might decide we therefore need more TIPS, a higher allocation to equities, more money in total, there are so many suggested strategies for this dilemma, less necessary for the shorter retirement horizon of the widow(er).
Catherine,
As I have written before for my pension we decided to take the annuity option. The dollar amount in my account just over 100K, so less than 10% of our portfolio, so was not a big “bet.”
Also since the pension was through a hospital that also included physicians my thought was the pension fund managers certainly did their due diligence when it came to picking the insurance company.
We chose the 100% survivorship ship option since it did not change the monthly payout significantly relative to our income. One of us will have to live only 11.5 years to “get our money back.” If my wife lives to 100+ (her mother died at 103+, my parents 85), that means “we” will have collected for 35 years. It seemed like the right decision and that the odds we will collect way more than our investment. I know that is not the best way look at it as during that time period we are just getting what the hospital put in, minus potential opportunity cost of not investing the money. It’s funny that even though the monthly amount is less than 1K which does not come anywhere near what we spend, my wife gets comfort knowing that money is coming in each month.
This was a major concern of mine. I had a govt pension and we both had SS. DW would get half of my pension if I passed first.
When I retired at 66, 90% of our investments were in TIRAs. I gradually converted this to a Roth for myself, and when my DW passed last year, our TIRA was about 12%. We paid first or second tier IRMAA penalties and higher marginal tax rates for years to achieve this. I can use the remaining TIRA for QCDs and avoid any future taxable income for RMDs.
However, I cannot avoid the change in tax rates. Regardless of what I do, I will be at least in the first IRMAA tier. I am not complaining because I am blessed to have a good pension and SS and can live a nice lifestyle.
My biggest mistake was not doing Roth conversions before I took SS which could have avoided IRMAA. I thought I understood taxes very well but I was asleep on Roth conversions until I retired and started SS.
I know it is all about money, but once you have sufficient money to live, the last thing I worry when a spouse passed away is money. Witness a few friends when spouse passed in last few years, money is the last thing you worry about. Happy Friday.
Thanks for generating this discussion with your post. Tax planning is an important tool that keeps our savings well-managed.
And thanks to Michael for posting the Bernstein article link. I think it highlights the need to base all our decisions, financial and otherwise, on careful consideration of our specific situations. In the case of tax-planning, if the tax is beyond our facility with numbers, the services of a CPA could be well worth the fee.
Several days ago someone linked to a Bill Bernstein article that sent me down a rabbit hole of his recent writings including this different perspective.
https://www.advisorperspectives.com/articles/2025/09/29/widow-tax-hit-debunked
A couple of months ago Sean Mullaney covered this topic.
https://youtu.be/31-GevC1lVs?si=X8nCVaZaGhdDUpw6
As others have said, you have to run the numbers.
Thanks for the reference. Very nice perspective by Sean. Don’t lose the forest for the trees!
I agree with Bill Bernstein that folks need to do the actual math for their situation. While tax may rise, expenses will go down, so the maneuvering to avoid future taxes by paying more taxes now on Roth conversions, or the expense of insurance products sold by fear mongering advisors may be unnecessary.
Agree,
I’m always skeptical about these tax lowering maneuvers. My primary goal is current cash flow and wealth growth. A lower tax bill doesn’t necessarily lead to that. Run the numbers, and pay more attention to the final after tax cash flow and wealth level.
Thanks for a great review article. I had always thought of Roth conversions as providing three benefits: 1) Lowering RMDs when we turn 73, 2) converting all of my wife’s lower (1/3 of our total traditional IRA’s balance) to simplify RMDs to only one account, 3) tax free inheritance for my children.
Now I realize there is a fourth benefit, reducing my wife’s taxable income, when I most likely pass first, thus reducing the IRA widow’s tax.
That was a good article. I thought I knew the territory well, but the suggestions about what to do are worth considering. For example, I had considered Roth conversions for various reasons, but not specifically for providing a pot of tax-free money for the surviving spouse.
We both have term life policies that end the year we turn 69, about six months before my husband turns 70. I’ll file for SS at 67, but he’s planning to wait until 70. Those policies are a hedge against him not making it to 70. But taking out new term policies specifically for the purpose of replacing the second SS is also an interesting idea. It wouldn’t have to be a ridiculously huge policy.
Anyway, it gave me something to think about, so thanks for sharing it!
Also think of the Roth conversions as a way to hold down the size of the RMDs for the surviving single survivor. We’ve been aggressively doing Roths for a number of years—during which the stock market returns have been very good. Without those conversions whichever one of us is left would face huge RMDs while filing as single. And the multiplier for calculating the RMDs also increases with age.
That’s a good point. We’ve been ambivalent on Roth conversions, even though we understand the reasons behind them, because (a) my husband is still working and (b) we have pension income. Our tax bracket will be lower once he goes down to 50% later this year and eventually fully retires, but it’s never going to be super low. But maybe it’s worth doing anyway for the “widow’s penalty” reasons.
We actually started the conversions because our kids are likely to be in their prime earnings years when they inherit. But since we’ve started the conversions the money we put into the IRAs has tripled in value — and I doubt we are the most efficient investors. So right now about half of what we would have had in IRAs is in Roths earning excellent tax free returns, while the IRAs continue to grow, but the continuing conversions and liberal use of QCDs are not pushing our RMDs into the stratosphere.
Maybe, but I suggest you have a look at the Bernstein article I linked to before you decide.
I just read it. It didn’t look like the Uncle Joe/Uncle Jerry scenarios accounted for RMDs, which is what we were discussing. If you have a huge amount of retirement account savings and became a widow(er) after RMD age, it makes sense that your tax hit, including IRMAA, would be (much) larger. Plus there’s the loss of one Social Security check.
I take the point that, depending on how the couple spends money, the survivor’s expenses could go down, but that also doesn’t change your tax hit—it just makes it somewhat less painful.
Maybe I’m missing something?
Our plan right now is finishing up Roth conversion this year before RMD. I have delayed to claim of my SS benefit until 70. Our IRMAA surcharges will be gone by next year. Our portfolio has our income floor as keeping up with inflation, so we are about 70% US stocks, 10% international ETF, 15% Bond ETFs, and 5% cash. We have never thought about term life insurance and at our ages this may not be advisable.