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MoneySmart: Recovering from the Loss of a Spouse

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Same-sex survivors are now entitled to additional benefits.

MoneySmart
Grace S. Yung

Facing the loss of a spouse or partner is never easy. Unfortunately, in addition to the emotional devastation, there is the financial challenge of having to move forward—often with the same monthly expenses but reduced household income. 

 It is important that widows and widowers not rush into major financial decisions, such as selling their homes or making large purchases, during their time of grief. And it is also essential for them to make sure their ongoing living expenses can be covered. In this case, there are several potential sources of income that a surviving spouse may be able to rely on. 

Over the last few years, a lot has changed regarding same-sex spousal benefits such as Social Security. Today, the Social Security Administration recognizes same-sex couples’ marriages (as well as non-marital legal relationships like civil unions and domestic partnerships) in all 50 states. Additionally, in Texas, common-law marriages are recognized, provided that certain criteria are met. 

If you are the widow or widower of an eligible worker, you can receive full benefits at your full retirement age, or reduced benefits as early as age 60.

If you qualify for Social Security benefits based on your own work record, and they are higher than those you would receive as a survivor, you can switch over to your own benefit amount as early as age 62. Conversely, if you are collecting your own benefit that is lower, you can “step up” to  your spouse’s higher monthly benefit amount at the time of their passing. 

The decisions you make with regard to Social Security can make a big difference when it comes to your current and future cash flow. 

For example, Mary is not yet 62. Her spouse, Christine, who had not yet started collecting Social Security retirement benefits, passed away at 65.

Some may think Mary should immediately start collecting widow’s benefits. However, because she is below full retirement age, doing so would actually result in a reduced benefit amount—one that would remain lower than normal for the rest of her life.

A better alternative for Mary would be to begin collecting her own reduced Social Security at 62, then switch over to an unreduced widow’s benefit at full retirement age. 

There are other ways to collect benefits from Social Security, too. For instance, if you and your spouse were living in the same household, you may be entitled to a one-time lump-sum death benefit of $255.

If your spouse was entitled to a pension outside of the U.S., the Windfall Elimination provision requires you to notify the Social Security Administration. However, survivor’s benefits will not be negatively impacted.

In addition to Social Security, your spouse or partner may have named you as the beneficiary on a life insurance policy or retirement account. In the case of life insurance, a beneficiary designation is extremely important in ensuring that the proceeds from the policy go to the intended recipient.

As the beneficiary of a life insurance policy, you can receive the proceeds tax-free. You can also typically avoid going through probate, which can be a time-consuming and costly process.

If your spouse contributed to an employer-sponsored retirement plan or an Individual Retirement Account (IRA), you may also be able to claim financial resources from these assets. 

For example, same-sex spouses can roll over inherited retirement-plan assets to their own IRAs and defer the required minimum distributions until age 701/2. 

Typically, however, a non-spouse who inherits an IRA must either begin to take required minimum distributions no later than December 31 of the year after the owner died, or withdraw the entire balance within five years.

Unless a specific person (or persons) is designated as the beneficiary on life insurance, retirement accounts, and/or bank accounts, the recipients of these assets could be decided by a probate court—and the result may not be what the deceased person intended. 

 If you have recently lost your significant other, it can be a scary and lonely time. But it doesn’t mean you have to suffer financial consequences. 

To make the most of your current situation, as well as to plan for the future, it can be beneficial to meet with a financial professional who focuses on the LGBTQ community.

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Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.
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