A Proposal to Reduce Widows’ Poverty

A dramatic decline in widow’s poverty over a quarter century has been a positive outcome of more women going to college and moving into the labor force.

Yet 15 percent of widows are still poor – three times the poverty rate for married women.

A new study by the Center for Retirement Research takes a fresh look at Social Security’s widow benefits and finds that increasing them “could be a well-targeted way” to further reduce poverty.

Widows are vulnerable to being poor for several reasons. The main reason is that the income coming into a household declines when the husband dies.  The number of Social Security checks drops from two to one, and any employer pension the husband received is reduced, or even eliminated if the couple didn’t opt for the pension’s joint-and-survivor annuity.

While one person can live more cheaply than two, the drop in income for new widows often isn’t accompanied by a commensurate drop in expenses.

Another issue begins to develop as much as 10 years before a husband dies. Prior to his death, his declining health may increase the couple’s medical expenses and reduce his ability to work, depleting the couple’s – and ultimately the widow’s – resources.

The irony today for wives who worked is that their decades in the labor force generally improve their financial prospects when they become widowed. Yet, under Social Security’s longstanding design, they receive less generous benefits than housewives – relative to the household’s benefits prior to the husband’s death.

First, consider the couple with only one breadwinner. Under Social Security, the retired husband collects a benefit based on his past earnings – his wife gets a spousal benefit equal to half of that amount. Once widowed, she begins receiving his benefit, and hers stops. This leaves the widowed housewife with 66 percent of the income the couple had received.

But today, because so many women are working, more retired wives get a Social Security benefit based solely on their own work histories, and this benefit exceeds the spousal benefit. Once widowed, she gives up her benefit and receives his benefit (assuming his earnings were higher than hers). The result is that, despite having worked, the drop in her income is larger than it is for widows from one-earner households.

So what can be done to help women, who are much more likely than men to become widows?

The researchers cite one reasonable proposal that would set all widow’s Social Security benefits – whether they worked or not – at 75 percent of the couple’s previous combined benefit. The increased cost to the program could be funded by reducing spousal benefits. This would effectively shift money from when both members of a couple are alive to the surviving spouse.

Working wives are now so common that it may be time to rethink widows’ and spousal benefits.

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.