What is the “Survivor Penalty”
Has your financial advisor discussed with you something called the “survivors penalty”?
Probably not.
In fact, most probably have no idea what that is.
Truth is I didn’t know it had a name. I remember a year or so ago when I first made the connection about this idea. So what is it?
If you are married you normally file your taxes jointly which is often an advantage. This is especially important in your senior years.
Yet, most people fail to realize that if your spouse passes away then you lose the ability to file jointly. Bummer.
Recently, my local news here in Los Angeles brought this issue up and I am glad they did.
With women outliving men on average, this “penalty” can disproportionately impact female finances into the future as they will likely be the ones to experience this after the death of a spouse.
What this article does not include in its treatment is that the same type of penalty occurs with divorce situations as well. Again, losses of deductions impact the financial outcome of the two separated parties. Again, this tends to disadvantage the financial prospects of women. Fortune provided a great article that outlined this aspect and shed some light on divorce laws.
Men hold 2.5 times more wealth than women and that can put many women at a disadvantage economically. Some have found themselves with little to nothing to even be able to move on from a troublesome marriage because they lack the resources to do so. Some women that have primarily raised children and not set their sights on their personal economic advancement find the rug pulled out from underneath them when a spouse leaves. Starting over at 35 or 40 years old with little work history is not economically favorable in our current context.
In any case, make sure to plan for these changes and make them part of your financial planning conversations with your trusted professional. If they are not bringing it up, then you should.
Here is a link to the article about the “survivor penalty.”
Here is a link to the article about the economic impact of divorce on women.
As always, if you come across a financially related article you’d like to send my way please do!
Best place to send them is to me.
More next time!
Jonathan