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Many retirees worry about the impact that threats such as inflation, longevity, and market volatility will have on their nest egg.
But one risk – increased expenses like taxes after a spouse dies – may be less costly than expected, said Cody Garrett, a certified financial planner and founder of Measure Twice Planners in Houston.
This issue, known as the “survivor penalty,” affects some couples when their filing status transitions from married filing jointly to single. In other words, the standard deduction amount for a widow or widower will be smaller, and the tax amount will be compressed.
But many surviving spouses don’t fully understand their financial situation and “automatically assume that nothing has changed except their filing status,” said Garrett, who is also co-author of the book “Tax Planning for 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 older receive an additional standard deduction of $1,650 for each spouse and $2,050 for single filers.
President Donald Trump’s “big, beautiful bill” also added a temporary senior “bonus” deduction of up to $6,000 per individual ($12,000 for married couples filing jointly) through 2028, with certain income limits.
Whether filing individually or jointly, these tax breaks can significantly reduce older Americans’ effective tax rates, or the percentage of their gross income they pay in taxes.
Surviving spouses can file jointly in the year their partner dies, unless they remarry. Then, if you have dependent children, you can apply as a qualifying surviving spouse for up to two years.
The amount in parentheses is based on “taxable income,” which is calculated by subtracting the greater of the standard deduction or itemized deductions from adjusted gross income.
When the survivor penalty is “strongest”
Financial experts say that for single filers, survivor penalties could affect married couples with different life expectancies.
According to the latest data from the Centers for Disease Control and Prevention, there will be a nearly five-year difference in life expectancy between men and women in 2024. The average life expectancy in 2024 will be 81.4 years for women and 76.5 years for men.
“The penalties are most severe if your spouse continues to have a high level of income after you die,” said Britton Williams, CFP, senior wealth advisor at Calamita Wealth Management, based in Raleigh, North Carolina.
But “couples with similar incomes and modest savings or assets already in Roth accounts tend to feel less pain,” he says.
Pre-tax withdrawals from retirement accounts are subject to ordinary income taxes, but Roth funds are generally tax-free. Retirees typically must begin taking required minimum distributions (RMDs) from pre-tax accounts once they reach age 73.
How will the survivor’s cash flow change?
Measure Twice Planner’s Garrett said when comparing spending projections for a married couple and a surviving spouse, you need to consider how cash flow will change.
Some survivors may see their income and expenses decrease after their spouse passes away. For example, your Social Security retirement benefits may be reduced and your pension may remain the same. On the other hand, health care costs typically fall, and household spending may fall as well.
For pre-tax retirement accounts, the percentage required for withdrawals typically increases as you get older, Garrett said, so the younger the surviving spouse, the smaller the RMD may be.
Additionally, there are benefits for survivors who inherit taxable brokerage accounts. Depending on the state, you will receive a partial or full “step-up basis” that adjusts the property’s original purchase price to market value upon your spouse’s death.
Garrett said “the basis increase is vastly undervalued” because it could significantly reduce capital gains taxes if the family later sells the property.
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