How Own Income Affects Net Income Loss after the Death of a Spouse?

Abstract

The economic impact following the death of a spouse is mainly felt by survivors with no income of their own. After the death of a spouse an income loss also occurs in a double-earner household. Although the importance of changes in family structure and the labor force participation of women are widely recognized, very little research has been done on how financial risk following the death of a spouse relates to survivor’s own income. The present research investigates the extent to which own income reduces financial vulnerability resulting from the spouse’s death. In addition, the effect of income taxation on the financial situation of survivors is analyzed. In contrast to existing studies, the present analysis is based on hypothetical retiree households with the same net income. This guarantees that the household’s welfare before the death of a spouse is the same for different types of survivors. The present research investigates those surviving the death of a spouse in Austria, Germany and the U.S.A. The results presented here may help individuals plan lifetime earnings since they reveal the strong link between survivor benefit formula and survivor labor force participation. Furthermore, the results aid the drafting of new legislation that guarantees equity among survivors.