WIDOWHOOD: ECONOMIC ISSUES

Widowhood is defined as the status of an individual who was legally married to someone who subsequently died. Economically, the death of a spouse will result in loss of income and property that the deceased spouse received or owned, unless provision for their continuation and inheritance is made explicit in income program rules, laws of inheritance, or through the deceased spouse’s will. For this reason, it is important to understand how marriage and inheritance rights to income and assets are defined in law and by programs that provide income to elderly persons.

Economic effects of widowhood

Widowed older women, on average, report lower incomes and are more likely to be poor than are other groups of elderly persons. This is true in the United States and in other countries as well, though the difference in the United States is greater overall than in other developed countries. In the United States, over 48 percent of the poor elderly are widows, even though widowed women account for only 26 percent of all persons age sixty-five and older. Compared to the slightly more than 4 percent of couples age sixty-five and older who are poor, about 20 percent of widowed women are poor. This poverty rate is considerably lower than the 50 percent of widows who were poor in 1970, reflecting gains in earnings for both men and women, as well as improvements in pension and Social Security benefits. Nevertheless, on average, married women in the United States experience a decline in income when their husbands die. Although widowers (men whose wives have died) are somewhat more likely to be poor than are married couples, data that follow couples over time do not show a decline in average economic well-being for men when wives die.

The decline in economic well-being upon widowhood is somewhat of a puzzle. There exists a well-functioning life insurance market that sells products that insure against the loss of income upon widowhood. In addition, legislation has increased the rights of spouses to spouses pension benefits. While the timing of death is uncertain for a given individual, death probabilities can be predicted with considerable accuracy, permitting the estimation of probabilities and length of widowhood. Information that is readily available on Social Security benefits, and requirements that pensions provide annual reports on workers’ accrued benefits, would seem to provide the information necessary for couples to protect against any loss of income upon one spouse’s death.

One explanation for the difference between the economic status of married couples and widows is the association between death probabilities and economic status. Poorer men are more likely to die than higher income men. This is partly because individuals with chronic health problems generally have lower lifetime earnings (and lower retirement income) and die at younger ages than healthier individuals. For these individuals, low wages and early death are both due to long-term health problems. On the other hand, individuals who work in lower-paying jobs may be engaged in more hazardous tasks, have no employer-provided health insurance, and be less able to pay out-of-pocket for health care. Their low earnings are a cause of poorer health and consequent higher mortality. Whatever the reason for the association between lower earnings and poorer health, the lower income of widows can be attributed in part to widows being drawn from couples who were economically worse off when married than were women of the same age whose husbands are alive. This, however, is only a partial explanation. Husbands in higher-income couples do die and, on average, a decline in economic status is measured for their widows as well.

For some couples the out-of-pocket costs of health care associated with a spouse’s terminal illness or nursing home stay can diminish resources. However, there is little evidence that uncovered health care expenditures are a major contributor to higher poverty rates among widows. The concern that some spouses were left impoverished by payments to long-term care facilities for the care of the other spouse led to the 1988 amendments to the Social Security Act, which permits a community spouse to retain assets and incomes above the limit that previously had been allowed for nursing home reimbursement under the Medicaid program. Currently, the institutionalized spouse’s eligibility for Medicaid reimbursement of long-term care costs is assessed after a specified share of the couple’s income and assets (approximately half, up to a maximum amount) is allocated to the community spouse. The remaining share is allocated to the institutionalized spouse, and it is only this share that must be spent-down in order for the institutionalized spouse to be deemed Medicaid-eligible. While these provisions are important to some couples, their influence on widows’ well-being is limited. Married men have a low probability of nursing home entry. That a similar decline in economic resources is not observed for married men when wives die suggests that the expenses of a terminal illness per se are not a major contributor to the lower economic status of widows.

There is stronger evidence that widows, in contrast to widowers, are more likely to suffer income declines due to the loss of the deceased spouse’s Social Security and pension benefits. Why this happens, despite the availability of survivor benefits from Social Security and employer-provided pensions, is described below. While couples could insure against the loss of this income through the purchase of life insurance, research shows that many elderly couples are underinsured against probable income loss, and that life insurance is most likely to be purchased by relatively wealthy and healthy couples. The limited evidence available on asset change upon widowhood suggests that some decline in assets occurs upon widowhood. While it is expected that the growth in financial resources owned by women will reduce the financial consequences of widowhood, the persistent association between health, low income, and low assets means that the wives in couples with low lifetime earnings may remain vulnerable to economic insecurity as widows.

A final source of measured income differences between married and widowed women deserves mention. In surveys, some individuals identified as widows may not, in fact, have experienced the death of a marriage partner. This occurs for two reasons. First, it is known that divorced women whose former husbands die often describe themselves as widowed, an identification encouraged in part by the availability of divorced survivor benefits from Social Security. Second, it is also likely that women long separated from their husbands or in common-law marriages may term themselves widows after those partners die. The lower incomes and assets of these individuals may be due to their ineligibility for the benefits provided to widows by laws and programs. Their classification as widows not only exaggerates economic differences between widows and married couples, but also obscures the reasons these women are worse off. This situation may deter policy aimed at improving the economic position of divorced, separated, and never-married elderly women.

Survivor benefits: the U.S. social security program

The 1939 amendments to the Social Security Act provided benefits to wives and widows of retired and deceased workers. These benefits were initially paid to wives and widows age sixty-five or older. In 1950, widowers were made eligible for benefits, provided financial dependency on their wives prior to death could be established. In 1956, spouse and widow benefits were made available to women sixty-two to sixty-four years of age, and in 1961 to widowers in this age group. The age of eligibility for survivor benefits was reduced to sixty for widows in 1965 and for widowers in 1972, the same year that the dependency requirement for widowers was eliminated, making all Social Security survivor benefit provisions gender-neutral. Survivor benefits are payable to divorced spouses if the marriage lasted at least ten years. If each meets all eligibility rules, both a surviving spouse and divorced surviving spouse may receive benefits based on the deceased spouse’s earnings record.

Survivor benefits are equal to 100 percent of the deceased worker’s primary insurance amount, but may be reduced if the deceased worker had received retired-worker benefits prior to age of full benefit eligibility; if the survivor receives benefits early; if the survivor is eligible for other social security benefits (the dual entitlement provision described below); if a pension from noncovered work is received; or if the survivor reports other earnings (but only prior to the age of full benefit eligibility when the earnings limit is lifted). Some of these are described here, but program details are available at the Social Security Web site (www.ssa.gov).

Survivor benefits are payable at age sixty or, for disabled survivors, at age fifty-five. However, receipt before the age of full benefit eligibility reduces the amount received. As that age rises from age sixty-five to age sixty-seven (for those turning age sixty-two in 2022 or later) the monthly reduction will be adjusted such that 71.5 percent of the full survivor benefit is always payable at age sixty. A maximum and minimum payable amount applies to some survivor beneficiaries. For survivors who first receive survivor benefits no earlier than the age of full benefit eligibility (currently sixty-five, but increasing to sixty-seven) the survivor benefit can be no more than what was, or would have been, paid to the deceased worker. This means that a survivor of a retired worker who received benefits that were reduced for early retirement can receive no more than that amount, even if the survivor was older than age sixty-five (or, in the future, age sixty-seven) when survivor benefits were first received. Concern that the cap on benefits for widows of workers who received benefits early contributes to the lower income of widows and may lead to a lifting of the cap. The Social Security Handbook provides greater detail on specific program provisions.

Survivor benefits for which an individual is otherwise eligible may be reduced by the dual entitlement provision that, in effect, leads to the payment of the higher benefit for which an individual is eligible. The consequence is that survivors of one- and two-earner couples with identical retired-worker benefits may be paid quite different amounts, with the latter experiencing a larger decline in Social Security income than the former. Table 1, which shows the monthly benefits paid to two hypothetical couples, illustrates this (the higher hypothetical amount approximates the primary insurance amount of males awarded retired-worker benefits in 2000). Couple A is a single earner couple, while spouses in Couple B have identical covered work histories and benefits. The retired-worker benefit of the single earner couple ($1,200) is equal to the combined retired-worker benefits of the two-earner couple. Each spouse is also eligible for a spouse benefit equal to one-half of the other spouse’s retired-worker benefit. The nonworking spouse in Couple A will be paid an $800 spouse benefit, but, because only the higher of any two benefits is paid, neither spouse in couple B will receive an incremental benefit (the $300 spouse benefit would be less than each spouse’s $600 retired-worker’s benefit). Thus, when one spouse in each couple dies, the survivors are paid very different amounts. The survivor benefit is larger for couple A and equal to two-thirds of the pre-widowhood amount, compared to only one-half, for survivor B.

Differences in benefits paid to couples with identical earnings histories have motivated proposals for changes in Social Security survivor benefits. Most reform proposals call for the payment of a given percentage of a couple’s combined benefits. This would increase the survivor benefits of Couple B, and for all couples that share earnings responsibility. Some proposals include the reduction or elimination of spouse benefits, a change that would equalize predeath benefits paid to couples such as A and B, but leave the survivor benefit differences intact. However, savings from their elimination would help finance the higher cost of uniform survivor benefits for all couples.

Survivor protection: employer-provided pensions and individual accounts

Widows may also experience a decline in income when their spouse receives a single life annuity, a benefit that ceases upon the death of the annuitant. The 1974 Employee Retirement Income Security Act (ERISA) was passed in part to increase the chances that a survivor would receive a benefit from a deceased worker’s pension. ERISA requires both that private-sector, employer-provided pensions offer a joint-and-survivor benefit (i.e., one that pays some share of the retired-worker’s benefit to the designated survivor) and that the default payment to a married worker be at least a joint-and-one-half survivor annuity, unless the worker chooses otherwise. The 1984 Retirement Equity Act amended the ERISA survivorship provision to require a spouse’s notarized signature when the default joint-and-survivor option is rejected or another beneficiary designated.

Unlike Social Security, which does not reduce retired-worker benefits for a married worker with probable survivors, employer-provided pension plans (and other annuities) will reduce the amount paid to a worker when a joint-and-survivor benefit is chosen. This is because the pension is expected to be paid out over the longer period of time that includes the years when the survivor alone is alive. A survivor annuity is a specified percentage of the reduced benefit paid to the worker. Thus, a joint-and-one-half survivor benefit will pay an amount to the pensioner that is less than the single life annuity, and pay a benefit to the survivor, should the pensioner die, that is equal to 50 percent of this reduced amount. Unlike Social Security, which may pay survivor benefits to more than one surviving (or divorced, surviving) spouse, pensions are obligated only to consider one survivor.

Public employer-provided plans are not covered by ERISA, including its survivorship provisions. Although the majority of public plans offer joint-and-survivor benefits, they are not always the default, and they less frequently require notarized approval by the other spouse if a single life pension is selected. Further, the survivor provisions need not be met by retirement savings plans that are not employer-provided benefits.

About two-thirds of married male pensioners select some type of survivor benefit. For some women the loss of a husband’s pension income (because they chose a smaller survivor percentage or no survivor benefit) is a major cause of a decline in resources. Men with smaller pensions, men with other sources of income to share with their potential widow, and men whose wives had their own pensions are more likely to choose a single life pension. This last finding suggests that the increase in retirement security for women due to their own pension coverage may be offset by reductions in the probability of husbands selecting survivor benefits.

State law and widowhood status

State law can influence resources of surviving spouses in two important ways: (1) by defining marriage, and, (2) by specifying property ownership and property inheritance rights. Generally, the Social Security program recognizes an individual as a survivor for purposes of receipt of survivor benefits if the courts of the state in which the deceased spouse was living at the time of death would recognize the union as a valid marriage or would recognize the survivor as having the same status as a widow for purposes of sharing in the distribution of personal property when the deceased left no will. Uncertainty under state law about the legal status of a marriage may arise if the relevant state does not recognize the marriage—even if performed legally elsewhere—if a prior divorce was not completed or filed, or if common-law marriage is not recognized in that state. Because Social Security does not obtain or maintain records on marital status prior to benefit application, the documentation of marriage, divorce, and death of a spouse is an important part of establishing eligibility for survivor benefits.

State property and inheritance laws are important in determining the assets inherited by survivors. In so-called community property states, assets and income acquired during marriage are considered equally owned by each spouse, and a surviving spouse has ownership rights to half of all property acquired during marriage, even if the deceased spouse had willed more than their share of property to another person. In so-called common-law property states, assets and income are considered to be owned and controlled by the income-earning spouse, although a spouse may still be able to claim a share of a deceased spouse’s assets under the principle that a working spouse has an obligation to provide for the economic well-being of the other spouse.

Other national examples

Income in the later years of life, including during the period when only one spouse survives, is a result of life-long earnings and savings. In most developed countries, widowed women report lower incomes and are more likely to be poor than are other groups of elderly persons. In part, this is because they are drawn from poorer couples. But the larger explanation lies in the way in which public and private income and assets are, or continue to be, paid to surviving spouses. National social security systems can and do smooth out the consequences of earnings differences. While most developed countries provide survivor benefits (although Sweden has eliminated them), variations in rules about the share of inherited benefits, offsets for other income, minimum age of benefit receipt, minimum guarantees in public programs, and the role of the private sector in retirement income are all thought to contribute to differences in the well-being of widows. Clearly, the generosity and security of the underlying benefits paid to married retired workers provides the first layer of economic protection to surviving spouses. Survivor benefits build on this relative generosity.

The survivor benefits payable in Germany would seem less generous than in the United States, but they build on a more generous retirement base. During the first three months of widowhood, women receive 100 percent of the insured’s pension. Thereafter, 60 percent of the pension is paid if the widow is age forty-five or older, if she is disabled, or if she is caring for at least one child. Otherwise, only 25 percent of the insured’s pension amount is paid. These benefits are generally not taxed but they may be offset by other income. When the additional income exceeds a limit (equal to about one-third of the maximum benefit), benefits are reduced by 40 percent of the excess amount.

In contrast, the British national insurance system allows for inheritance of benefits with few offsets. Widows age forty-five and over without children get an age-graded share of the Basic Benefit, and at fifty-five they receive the full grant. While widows are eligible only for the higher of their own or their husbands’ Basic Pension benefit, they may inherit their husbands’ State Earnings Related Pension Scheme without offsets for other income or earnings. For widows of men who would have reached pensionable age before October 2002 (age sixty-five) the percentage inherited is 100 percent of the benefit, although it is scheduled to decline gradually to a maximum of 50 percent by October 2010.

In Canada, surviving spouses are eligible for a benefit consisting of two parts: a flat-rate benefit and an earnings-related benefit that is equal to a percentage of the benefit for which the deceased spouse would be entitled were he or she age sixty-five. After age sixty-five, this percentage is 60 percent, regardless of the age at which benefits were first received. Survivors may receive both the survivor benefit and their own benefits, subject to limits which may reduce their total below the combined benefits. Information on the Canadian plan can be found at www.hrdcdrhc.gc.ca/isp

Karen C. A. Holden Meeryoung Kim

see also Economic Well-Being; Employee Retirement Income Security Act; Medicaid; Poverty; Social Security, History and Operations; Widowhood.

BIBLIOGRAPHY

Auerbach, A. J., and Kotlikoff, L. J. ‘‘Life Insurance of the Elderly: Its Adequacy and Determinations.’’ In Work, Health, and Income Among the Elderly. Edited by Gary Burtless. Washington, D.C.: Brookings Institution, 1987. Pages 229–267.

Burkhauser, R. B., and Smeeding, T. Social Security Reform: A Budget Neutral Approach to Reducing Older Women’s Disproportionate Risk of Poverty. Policy Brief. Syracuse, N.Y.: Syracuse University Center for Policy Research, 1994.

Smeeding, T. M.; Estes, C. L.; and Glasse, L. ‘‘Social Security Reform and Older Women: Improving the System.’’ Income Security Policy Paper Series no. 22. Syracuse, N.Y.: Syracuse University Center for Policy Research, 1999.

Social Security Administration. Social Security Handbook. Available on the World Wide Web at www.ssa.gov

Weir, D. R., and Willis, R. J. ‘‘Prospects for Widow Poverty.’’ In Forecasting Retirement Needs and Retirement Wealth. Edited by Olivia S. Mitchell, P. Brett Hammond, and Anna M. Rappaport. Philadelphia: Pension Research Council.

Zick, C., and Holden, K. C. ‘‘An Assessment of the Wealth Holdings of Recent Widows.’’ Journal of Gerontology: Social Sciences: Social Science 55, no. 2 (2000): S90–S97.