‘Survivor’s penalty’ can follow after a spouse dies. What to expect
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Many retirees worry about how threats such as inflation, living longer or market volatility will affect their nest egg.
But one risk — higher expenses, including taxes, after a spouse dies — may be less costly than expected, according to certified financial planner Cody Garrett, founder of Measure Twice Planners in Houston.
The issue known as the “survivor’s penalty” affects some couples when their filing status changes joint marriage application being single, which means the widow or widower has a smaller standard deduction and compressed tax brackets.
But most surviving spouses don’t have a full view of their financial statements, and “they automatically assume nothing has changed except the filing status,” said Garrett, who also co-authored the book.Tax Planning to and from Early Retirement”
The standard deduction for 2026 is $32,200 for married couples filing jointly and $16,100 for single filers. Taxpayers age 65 and over get an extra standard deduction of $1,650 per spouse or $2,050 for those who are single.
President Donald Trump’s “big beautiful bill” also added a temporary senior “bonus” deduction of up to $6,000 per person ($12,000 for married couples filing jointly) through 2028. certain income limits.
Whether filed alone or jointly, these tax deductions can significantly reduce an older American’s actual tax rate, or taxes paid as a percentage of total income.
Surviving spouses may file jointly in the year of their partner’s death, as long as they do not remarry. After that, they can apply as a file. surviving spouse up to two years if they have dependent children.
The brackets are based on “taxable income,” which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
Survivor’s punishment ‘when he gets hit the hardest’
Financial experts say the survivor penalty for single filers could affect couples with different life expectancies.
Almost in 2024 5 year life expectancy difference between genders, according to the latest data from the Centers for Disease Control and Prevention. Life expectancy in 2024 was 81.4 years for women and 76.5 years for men.
“The penalty is most severe when income remains high after the spouse dies,” said Britton Williams, CFP, senior wealth advisor at Calamita Wealth Management in Raleigh, North Carolina.
But “couples with similar incomes, modest savings or assets already in Roth accounts tend to feel less pain,” he said.
While pre-tax withdrawals from retirement accounts are subject to regular income taxes, Roth funds are generally tax-free. Typically, retirees must begin required minimum distributions, or RMDs, from pre-tax accounts at age 73.
How does cash flow change for survivors?
When comparing spending estimates between a married couple and a surviving spouse, you need to consider how cash flow will change, said Garrett of Measure Twice Planners.
Some survivors may face lower income and expenses after their spouse dies. For example, Social Security retirement benefits may decrease and pensions may remain the same. Meanwhile, while medical expenses generally decline, household expenses may be similar.
For pre-tax retirement accounts, a younger surviving spouse’s RMDs may be smaller because the required withdrawal percentage generally increases with age, Garrett said.
There is also a benefit for survivors who inherit a taxable brokerage account. Depending on the state, they will receive a partial or full “basis step-up,” which adjusts the original purchase price of the assets to market value upon the spouse’s death.
“The increase in basis is very underappreciated” because it can significantly reduce capital gains taxes if the survivor later sells the assets, Garrett said.
