TRANSCRIPT
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#66 - Understanding The Widow’s Penalty and What You Can Do About It
Eric Blake: On today's show, we're going to talk about something that impacts more women than you might realize, and often they’re unaware and unprepared. It's what's known as the Widow's Penalty. Welcome to another episode of the Simply Retirement Podcast, where we want to empower and educate women to live retirement on your terms.
I'm your host, Eric Blake, practicing retirement planner with over 25 years of experience, founder of Blake Wealth Management. And I would not be the man I am today without the women in my life. This episode matters deeply because many women find themselves navigating complex financial waters at a time when they're most vulnerable—whether you've already lost a spouse or you simply want to be prepared.
This episode will hopefully give you some clarity and confidence. Joining me once again is Wendy McConnell. Wendy, how are you?
Wendy McConnell: I'm good. Thank you for having me.
Eric Blake: Absolutely. So a question: do you prefer “my amazing producer, Wendy McConnell,” or are you okay with just going straight to, “here’s Wendy McConnell”?
Wendy McConnell: However you feel about me that day. How's that sound?
Eric Blake: That may be… that's a setup.
Wendy McConnell: That's a setup.
Eric Blake: You're—I think you're setting me up. I think that's a problem.
Wendy McConnell: Yes. No, just my name is fine.
Eric Blake: Okay. Excellent. Excellent. So, I know we've talked about this. This topic has come up in dribs and drabs here and there on different episodes, whether we were talking about Social Security or other topics that we've covered in the past, but we haven't really gone in-depth on what the Widow’s Penalty is.
Eric Blake: So, a question for you. Before we started doing a few of these episodes—before we started working together—had you heard about the Widow’s Penalty, or what pops into your mind when you hear that term?
Wendy McConnell: No, I had no clue. I had never heard of it, so I had no clue what it meant.
Eric Blake: Perfect. Yeah, perfect lead-in then. Here we go.
Wendy McConnell: Inform me, please.
Eric Blake: Absolutely. So here’s basically what we want to do. We're going to walk through what the Widow's Penalty is and why it matters, of course. We're going to talk about why women are especially impacted—primarily we're talking about life expectancy and those types of issues as well.
We're also going to talk about what it means for your taxes and Social Security, and then of course, we want to make sure we talk about how to take control of your financial future. What can you do today, or in the near future, to hopefully minimize the impact? Or, if you're in the middle of it already, what are some of the things you can be aware of as you go forward?
For all the links and resources shared in the episode, please visit thesimplyretirementpodcast.com. And if you have a question, topic idea, or a specific retirement challenge you'd like to hear covered on an upcoming episode, you can visit thesimplyretirementpodcast.com/askeric.
Alright, so let's talk about what the Widow's Penalty is first. We'll start there and then see what your thoughts and questions are. Basically, the Widow's Penalty refers to the financial challenges that often follow the loss of a spouse. And it's not just one thing—it’s a combination of a few different things.
The first is loss of income. Now, at a minimum, you're typically going to lose at least one Social Security benefit, right? The surviving spouse gets to keep the larger of the two, but one of them goes away. Again, that's going to be more impactful for certain situations than others.
Then you have a possible reduction in income from other sources. It could be a pension, if the spouse had one, or maybe it’s business income, or whatever the other source of income might be. If that doesn't continue to the surviving spouse, obviously this loss of income could be even more significant.
Even more importantly, you might actually see a jump in your tax rate as a result of now having to file single versus married filing jointly. Social Security alone can drop anywhere between 25% to 50%, depending on whether both spouses were receiving benefits and how much they were receiving—whether both were receiving their own benefit or one was receiving a spousal benefit.
We also know that if Social Security is your only, or maybe your main, source of retirement income, that drop can be devastating, especially when you’re talking about fixed household expenses. They may not change a whole lot even though one spouse passes away. You’ve still got utilities, property taxes, all these different things.
Now, on the tax side, the Widow's Penalty really shows up more when there are other income sources beyond Social Security. Think about things like IRAs, 401(k)s, pensions, rental properties—things that actually could continue on with the surviving spouse. Does that make sense?
Wendy McConnell: No. So you're saying that she can still draw from his 401(k)?
Eric Blake: Yeah. So let’s talk—I’ve got an example. It might help all this sink in a little bit. I always call them “Bob and Sue.” So Bob and Sue are clients. They've actually worked with us for a while. Unfortunately, Bob passed away just a few months ago.
So, you think about their situation. He had the higher Social Security benefit, so she’ll get to continue that, but hers is going away. That’s already a loss of income from that standpoint. Together, they had about a million dollars in IRA accounts. Part of it was his, part of it was hers. But when he passed, she now rolls that money into her own IRA. So now, unfortunately, she’s a widow, but the whole million dollars is under her name.
Wendy McConnell: And you get more leeway for a two-person family rather than a single person, because the tax brackets are different.
Eric Blake: Exactly. So what basically happens is this: her income—and I'll explain why in particular her income won’t change in just a little bit—but if her household expenses don’t change much, she’s really not in a position where she’s going to take less out of the IRA. Because her tax bracket now is potentially single versus married filing jointly, you can see how, if her income doesn’t change a whole lot, she might actually be pushed into a higher tax bracket.
Wendy McConnell: Okay, so let me ask a quick question. Does this pertain to the amount of money that they're counting as income, or the amount of money that you have to pay in taxes to retrieve the money? Like, I'm thinking Roth IRA—would that eliminate any of these issues?
Eric Blake: You’re jumping way ahead—you’re getting into strategies now. [laughs] No, it’s a great point. I’m glad you asked because, again, we’ve talked about Roths and different things like that. They can be a very valuable strategy. But unfortunately, when you think about most people’s retirement scenario, where is most of their money?
Most of it is in the 401(k) or the pre-tax bucket—the traditional IRAs, rollover IRAs, 401(k)s. You hope that if there’s some advanced planning, maybe there are some Roth accounts and some Roth assets that might be tax-free. But in this particular circumstance, like many Americans, most of their money is in pre-tax buckets.
So if her income doesn’t change—and in this case, it really doesn’t—then she’s still going to need to take out the same amount, maybe even more, from those retirement accounts. And that’s what puts her into a higher tax bracket.
Now, I got her okay to share this part of her story. She has two special-needs adult sons who live with her. So, how much can her expenses really go down if she’s taking care of herself and them? Her income scenario again really doesn’t change. She’s going to have very similar gross income and therefore taxable income, because she still has to continue withdrawing about the same amount from those retirement accounts.
So now you’ve got a single filer instead of married, taking the same amount of income. Very likely, that’s going to push her into a higher tax bracket.
Wendy McConnell: Okay.
Eric Blake: Now one thing I do want to touch on—this is an interesting situation. It’s going to apply to some people, but not everybody. I think it’s worth bringing up because it impacts younger couples more often, but it does come up in retirement too.
If you have a child—adult, minor, whatever the case might be—who qualifies as a dependent, you could potentially qualify for what’s called Qualifying Widow Status. That’s a filing status, just like “single” or “married filing jointly.” But it specifically applies to a widow or widower.
For the two years following the year of death, you may be able to file as “qualifying widow,” which means your tax brackets are the same as “married filing jointly.”
So in Sue’s case, this does apply because both of her sons are considered dependents. She’ll be able to use this filing status, and it presents some really strong tax planning opportunities—if you’re even aware of it.
Now, a lot of people think: “They’re adults, so whether they’re special needs or not, I don’t get to claim them as dependents.” But that’s not true in this case, and it creates some valuable opportunities.
So yes, it typically applies to younger couples with minor children, but as we see here, it can apply even in retirement when there are dependents. That’s why you want to know that it’s out there—it could present some really important tax planning strategies.
Wendy McConnell: It’s just for two years though? That’s it? That’s all you get?
Eric Blake: Two years following the year of death.
Wendy McConnell: Exactly. Okay, gotcha.
Eric Blake: Right. So again, just knowing and understanding how to utilize these strategies is critical. And we’re going to talk more about tax planning opportunities later. But just keep in mind: if you, or someone you know, has a dependent child and they’ve lost a spouse recently, this might be something they can utilize from a tax planning perspective.
Always good to know, right?
Wendy McConnell: Absolutely.
Eric Blake: That’s what it’s all about—knowledge. You can’t take advantage of something unless you know it exists.
Eric Blake: So let’s talk about why it hits women harder than men. And this isn’t going to be surprising, but really the number one reason is: women live longer.
According to the CDC, women outlive men by about six years on average. Using my grandmother’s case as an example, she’s now been a widow for 28 years. She became widowed at age 62, and she’s still here. You just never know.
The average age of widowhood is 59 and a half.
Wendy McConnell: Aw, that’s so young.
Eric Blake: It is. And that’s significant—not just emotionally, but financially. That age might ring a bell for some people: 59 and a half is also the age you can start taking money out of retirement accounts without penalty.
Just as another client example—we had a case a couple years ago where the husband was 62, the wife was 58. He retired, started Social Security, and unfortunately, within just a couple of months, he passed away.
Her situation was very challenging. She had been out of the workforce for about 20 years, caring for a special-needs child. She was 58, not yet 59 and a half, and all of their assets were in his 401(k).
We had to be very careful about planning in that scenario.
Wendy McConnell: Because even if you switched them over to her, if they rolled over into her name, she still wouldn’t be able to access them?
Eric Blake: Exactly. If you do a direct rollover to her own IRA, she’s under 59 and a half. Not only would she have to pay taxes on withdrawals, but she’d also face a 10% penalty.
So from a planning perspective, what we were able to do was roll it into what’s called an Inherited IRA. With an Inherited IRA, there’s no 10% penalty. It’s still taxable, but she could at least access those dollars to live, pay her bills, and get health insurance.
Understanding the rules became really critical in her situation. If the average age of widowhood is 59 and a half, that means there are a lot of women who find themselves on their own before that age. So the question becomes: what do you do?
Wendy McConnell: Is that correlated, by the way?
Eric Blake: I don’t know.
Wendy McConnell: It just seems very suspicious. But anyway, please proceed.
Eric Blake: [laughs] If somebody intentionally lined those ages up, then they’re way smarter than I am. That’s all I can say.
So that’s the second point: the average widow is 59 and a half.
The third point is that women tend to have smaller Social Security and pension benefits. Whether that’s because they historically had lower career earnings, or because they had time out of the workforce to provide care—whether for children or aging parents—the result is often smaller Social Security benefits, smaller pensions, and less retirement savings.
And then number four: the communication gap. In many households, there just isn’t enough discussion around these issues. Nobody wants to talk about death, but realistically, it’s going to happen at some point. Sometimes it’s sooner than expected, as we see with that average widowhood age.
Often there’s a separation of duties in a household: maybe the woman handles the family and household needs, while the husband handles the finances or retirement planning. If the communication isn’t there, then when the husband passes away, the wife is left saying: “What do I do now? He handled this, and now it’s on me.”
That’s a big part of this conversation: you have to talk about it. You have to ask: “If something happens to you, where does that leave me? Where will my income come from?”
That’s where the unawareness of the Widow’s Penalty comes into play—you’ve got to know it exists, and that it could happen to you.
Wendy McConnell: Women should really just bring it up as a protective mechanism for themselves. And I know it can be uncomfortable, but at the same time, it’s going to be really uncomfortable if something happens and you’re stuck.
Eric Blake: Exactly. My guess is it would be even more uncomfortable if you weren’t making the decisions before, and suddenly all of it is on your shoulders.
Wendy McConnell: Yeah.
Eric Blake: Much more uncomfortable than just bringing up the conversation.
And here’s the thing: if you’re not sure where to start, go back to Episode 59 with Kathleen Kingsbury, author of Breaking Money Silence. Read her book, listen to that episode—it will give you prompts and ideas to start those conversations. Because at some point, one spouse is going to pass away first. Most likely, it will be the husband. And the wife will be left asking: “What do I do? Where do I go from here?”
Wendy McConnell: And even if it’s the reverse, the penalties aren’t as extreme because the male typically has the higher Social Security benefit.
Eric Blake: That’s true. But you still lose one benefit, so it comes back to: what does your expense situation look like? Can you reduce expenses enough to make the loss less impactful?
Again, this applies to men and women equally in terms of the mechanics. But because of life expectancy and earnings differences, women end up being impacted more often.
Eric Blake: So let’s circle back to the tax piece of the Widow’s Penalty. We broke it down into two main issues:
Loss of income.
Potentially being pushed into a higher tax bracket.
Let’s focus on the tax situation again, just to make sure everybody understands how this works.
When you’re married, you file “married filing jointly.” When one spouse passes away, now you’re filing as “single.” That’s the biggest part of it.
Now, one really important key to be aware of: in the year that you lose a spouse, you still get to file married filing jointly.
Wendy McConnell: For that year. So you need to be aware of that.
Eric Blake: Exactly. And that’s when we talk about planning opportunities. In fact, in Bob and Sue’s case—the example I mentioned earlier—the first meeting I had with Sue after Bob’s passing, she brought this up. She said, “Didn’t you mention at one point that if one spouse passes away, there’s something I should be aware of with taxes?”
She didn’t remember the phrase “Widow’s Penalty,” but she remembered the conversation.
That’s the point—it’s not about memorizing all the details, but about having enough awareness to ask your advisor: “What should I do? What opportunities do I have this year?”
Because in the year of death, when you still get to file jointly, there can be planning opportunities. You hate to think of it as an “opportunity,” but that’s what it is. You may be able to take action that reduces your future tax liability.
Wendy McConnell: Okay.
Eric Blake: And it’s not just about the tax bracket. Other things can come into play.
For example, you might get hit with what’s called an IRMAA surcharge—that’s basically higher Medicare premiums for Parts B and D. If your income is high enough as a single filer, your Medicare costs could go up.
We also now have this new tax law—the One Big Beautiful Bill Act—that created an age-65 deduction. That’s great in some situations, but if your income is too high, you might lose it or see it reduced.
And then there are Required Minimum Distributions (RMDs).
Let’s say a couple has a million dollars in retirement accounts. While both spouses are alive, RMDs are split between them and taxed at joint rates. After one spouse passes, now the surviving spouse has all of it under one name. The distributions may be about the same, but they’re taxed at single rates instead of joint.
That’s exactly the tax side of the Widow’s Penalty—same or similar income, but a higher tax bracket.
That’s why planning ahead—during the years before death, when we don’t know when that will be—is so important.
We call these critical planning windows.
Think about the years between ages 62 and 72 (or 75, depending on your birth year). That period before Social Security begins, before RMDs begin, before Medicare enrollment—those can be very valuable planning windows.
Every situation is different, but you want to ask: Where are my tax-planning windows of opportunity?
If you retire at 62 but don’t plan to take Social Security until 65, that’s a three-year window where you might consider Roth conversions or additional IRA distributions.
Just as a reminder, if you were born before 1960, your RMD age is now 73. If you were born in 1960 or later, your RMD age is now 75.
Wendy McConnell: So you can put them off until age 73 or 75.
Eric Blake: Yes. And there are situations where delaying makes sense—for example, if you’re still working or you don’t need the income.
But here’s the downside: every year you delay, those accounts keep growing, and your eventual RMDs could be huge. That creates what I call a “tax time bomb”—a big liability sitting there that you may not realize until it’s too late.
Wendy McConnell: That sounds like a good time for a Roth.
Eric Blake: Exactly—it can be a great time for Roth conversions. But you’ve got to know where your planning windows are, based on your goals, retirement age, and income sources.
And here’s another key: even if you’re still working in retirement—say 10 or 15 hours a week—if you have earned income, you can still contribute to a Roth IRA. It doesn’t matter if you’re 65, 75, or even 80. As long as you have earned income, Roth contributions remain an option.
Eric Blake: So we’ve talked about the tax component of the Widow’s Penalty. Now let’s move to the Social Security considerations.
The biggest thing here is having a filing strategy and communicating about it. You have to talk about: When are we going to file for Social Security?
If there is a higher earner, the best strategy is usually to delay that benefit until age 70. That maximizes the benefit itself, but it also maximizes the survivor benefit.
If there’s an income disparity between spouses, think about what that looks like. When should the higher earner file? When should the lower earner file? You need to have a plan and understand the implications.
I always say Social Security is one of the most underrated aspects of retirement planning.
Let me go back to the Bob and Sue example. Bob passed away at 62, Sue was 58. He started Social Security early at 62. Sue hadn’t reached 62 yet. She actually could have claimed a survivor benefit as early as 60, but under the circumstances, it wasn’t the right timing.
The impact was this: her survivor benefit was significantly less than what it could have been if Bob had delayed his filing.
So you’ve got to have these conversations and understand the rules.
Just to touch on a few key ones:
You must be at least 60 to claim survivor benefits off a spouse (or 50 if disabled).
You can switch from your own benefit to a survivor benefit—or vice versa—depending on which is higher.
The general rule of thumb is to delay the larger benefit as long as possible to maximize it.
Timing and coordination with other income sources (IRA distributions, pension income, etc.) becomes critical.
Wendy McConnell: When is the best time for couples to talk about these issues? At 55? 58? 59? 60? Give me some parameters.
Eric Blake: You should start talking early—at least know the basics of the rules by your early 50s, maybe even sooner.
From a planning perspective, what I always suggest is this: if you’re in your late 40s or early 50s, assume you’ll start at full retirement age. Build your retirement plan on that assumption.
As life happens, you can always adjust. Maybe income changes, maybe one spouse becomes the higher earner later—it can shift. But if you start with a baseline plan at full retirement age, then adjust as you get closer, you’ll be prepared.
Wendy McConnell: Okay. So as a 55-year-old woman with a 55-year-old husband, I should already know when we’re going to start Social Security—both for myself and for him.
Eric Blake: Yes, you should have a ballpark idea. Right now, at age 55, you might just say: “We’re planning on 67 (full retirement age).” Then ask: “What will his benefit look like? What will mine look like? How does the age difference between us affect things?”
What I like to do is build an income timeline. You can map out: “If I retire at 65 but delay Social Security until 67, what do those income years look like? When do IRA withdrawals kick in? When does pension income start?”
That way, you’re not just guessing—you have a plan you can tweak as you get closer.
Unfortunately, as we’ve already said, the average age of widowhood is 59 and a half. Plans can change drastically without much notice.
Wendy McConnell: I don’t like that one.
Eric Blake: Nobody does. But that’s the point—you don’t want to be caught off guard.
I’ve even heard people say, “I don’t want to draft a will, because if I do, I’ll die.” It doesn’t work that way. But you’d be amazed at how often that mindset keeps people from planning.
And when they don’t plan, it leaves an even bigger burden on the people left behind.
Eric Blake: Okay, so let’s talk about strategies. We’ve touched on some of these already, but now let’s go step by step through the key strategies that can help reduce the long-term impact of the Widow’s Penalty.
Think of these as proactive steps to consider before the loss of a spouse. Because once they’re gone, some of these opportunities are gone too.
1. Take advantage of the joint tax bracket.If your income is going to be about the same whether it’s one spouse or two, then while you can still file as “married filing jointly,” you should be thinking about Roth conversions or IRA distributions. That’s the time to do it in lower tax years, while you still get the benefit of joint brackets.
2. Consider capital gains harvesting.If you’re in a lower bracket, you may be eligible for the 0% long-term capital gains rate. That could mean selling some mutual funds, stocks, or other investments tax-free. After a spouse passes away, that same sale might cost 15% or more.
3. Use Roth conversions to minimize future tax exposure.Remember, RMDs only apply to pre-tax accounts. If you can shift some money into Roth accounts before widowhood, you reduce future required distributions and create a tax-free bucket of money for later.
Wendy McConnell: So you can do a required minimum distribution into a Roth account, and then you’ll just have to pay the taxes that are owed on that?
Eric Blake: Not exactly—it depends on your age. Once you’ve reached RMD age, you must take the required minimum distribution, no matter what. You can’t convert that required amount.
But you can convert above the required amount. For example, if your RMD is $10,000 and you’re in a low tax bracket, you might decide to also convert another $10,000 to a Roth. That way you’re being proactive instead of just taking the minimum.
Wendy McConnell: What are the rules stopping me from just putting the required distribution into a Roth if I’m paying the taxes anyway?
Eric Blake: It comes down to the IRS rules. Once you take out the RMD, it’s considered a distribution. To put money into a Roth at that point, it has to be a contribution—and contributions require earned income. A conversion, on the other hand, is directly moving pre-tax IRA money into a Roth. The IRS doesn’t let you treat an RMD as a conversion.
Wendy McConnell: And there are limits on contributions, right?
Eric Blake: Yes. For contributions, the main limitation is you must have earned income. That’s different from conversions, where you don’t need earned income, but you can’t convert the RMD itself.
Wendy McConnell: We need to do a whole episode on this because my head is rattled.
Eric Blake: [laughs] That makes sense. And you’re right—we definitely need to do a full episode on Roth IRAs, Roth conversions, and contributions. What is a Roth, how do you get money in there, and so on.
4. Reevaluate your withdrawal strategy while both spouses are alive.Think about whether it makes sense to take more out in the earlier years versus waiting. Prioritize which accounts to draw from first. That sequencing can make a huge difference later.
5. Coordinate your Social Security strategy thoughtfully.If at all possible, delay the higher benefit of the two spouses until 70. That maximizes the benefit during your lifetime and also maximizes the survivor benefit. If you can’t delay all the way to 70, at least delay as long as reasonably possible.
6. Consider life insurance—even in retirement.A lot of people think once they’re retired, they don’t need life insurance anymore. But if one spouse’s passing would mean a significant drop in income, life insurance can still be very valuable. It can help offset that gap and reduce the impact of the Widow’s Penalty.
Eric Blake: Now, if you’ve already lost your spouse, it’s still important to reevaluate your income, tax situation, and withdrawal plan. Some rules will change, but you need to be aware of options like Qualifying Widow Status or the ability to file jointly in the year of death.
It doesn’t always work out—unfortunately, I had a client whose husband passed away in mid-December. At that point, it was too late to do much planning for that tax year. So it doesn’t always line up in your favor. But when it does, you don’t want to miss the opportunity.
And I’ll say this: make sure you’re working with a financial professional who understands the Widow’s Penalty and can help you build a plan to support what your next chapter will look like.
Wendy McConnell: For sure.
Eric Blake: One more quick thought before we wrap up. We haven’t really touched on divorce, but a lot of the same issues apply there.
Think about it—you’ve got a loss of income, and if you’re both receiving Social Security, now you’re filing single on one benefit. Depending on how assets are divided, you might end up with similar income but in a higher tax bracket. So many of the same factors we’ve discussed with widowhood also apply to divorce.
I think that may even be worth an entire episode down the road. But just know, a lot of these planning considerations overlap.
Anything else you feel we need to recap, or any other thoughts, Wendy?
Wendy McConnell: Yeah—Roth IRAs. Let’s get that on the radar.
Eric Blake: [laughs] Okay, we’ll get that done.
Wendy McConnell: Alright. I’m good.
Eric Blake: Excellent. So, if you’re on the other side of losing your spouse, or if you simply want to take control of your financial future sooner rather than later, we’d love the opportunity to help.
At Blake Wealth Management, we specialize in helping women make smart decisions around income, investments, and taxes—especially when life takes an unexpected turn.
Feel free to visit getmysimplyretirementroadmap.com to get your Simply Retirement Roadmap. That’s our three-step process designed to help you answer your biggest retirement questions with clarity and confidence. You do not have to go through this alone.
And just as a heads up, over the next few episodes, we’ll continue this theme of helping you make these decisions after becoming a widow. We’ll cover what to do in the first week, the first month, and the first year following the loss of a spouse. We’ve even built a document that outlines all these steps, and we’ll be sharing that as part of those episodes.
That’s it for today’s episode. For all the links and resources, visit thesimplyretirementpodcast.com. Please don’t forget to follow and share the show. And until next time, remember—retirement is not the end of the road. It’s the start of a new journey.
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