The death of a spouse is a devastating experience, but there’s new evidence that the financial consequences are much more devastating for women than for men. After five years of being alone, a Statistics Canada study indicates, 72% of women face a drop in their standard of living, vs 51% of men.

David Shymko, a financial planner and partner with Vancouver-based Macdonald Shymko & Co., is surprised at the findings. But, he notes, changes in legislation may help in some cases.

Pension laws, for example, now require company pension plans to provide benefits for a surviving spouse, unless both spouses sign off in writing. In the past, says Shymko, a pension plan member could opt to forgo the surviving spousal benefit in favour of a higher retirement pension for the plan member, leaving the surviving spouse without benefits.

In any event, financial advisors agree the new findings underscore the need for careful retirement planning with couples to make sure adequate provisions are made for the surviving spouse, which is almost always the widow.

Critical to a successful outcome, says Bev Evans, an investment advisor in the Etobicoke, Ont., office of RBC Dominion Securities Inc., is getting both spouses involved in the planning process. It’s a point Shymko also emphasizes.

Evans, who specializes in advising older clients, particularly widows, says a good advisor insists on working with both partners and engages the couple “at their own level.” Sometimes one spouse will be reluctant to take part in discussions. But if the advisor has been more closely identified with the husband, for instance, the wife may feel alienated and unable to cope when she’s left alone, says Evans. A connection with both must be made.

The StatsCan study on the impact of the death of a spouse on the surviving spouse looked at the period from 1993 to 2003 and included all men and women 65 years and older who lost their spouse during that period. Only widows and widowers who survived the entire five-year period and who did not remarry were included in the analysis.

Senior women at all income levels — even those with the highest incomes — experienced declining income during widowhood, say the study’s authors, André Bernard, who works in StatsCan’s small area and administrative data division, and Chris Li, from the agency’s income statistics division.

It is important to understand how the income calculations were made. Bernard and Li calculated a figure for “adjusted income” as a measure of the individual’s standard of living. Starting with total family income before taxes, expressed in constant 2003 dollars, they adjusted the income measure to take account of family size and composition. They assumed a drop in family size, all other things being equal, should be associated with a redistribution in the family income.

In other words, the loss of a spouse may be associated with an increase in adjusted family income, an improved standard of living as the family is now one person smaller, even if the unadjusted family income did not change.

“The result should not be confused with a rise in unadjusted income resulting from the loss of the spouse,” they note.

The authors say widowhood affected the income of women differently than men. Senior widows saw their median income decline continuously in the five years following the loss of the spouse. On the other hand, the median income of widowers was higher five years after the wife’s death when compared with the year before the death.

The study shows even those from higher-income families faced financial consequences. After five years of widowhood, the 25% of senior women with the highest family income saw their income drop 8.6%. The losses came mainly from lower pension income and earnings (see lower chart, right).

Bernard and Li say their study establishes clearly that the negative consequences of widowhood on the adjusted income of widows worsen over time. “This indicates the importance of long-term follow-up to evaluate the real consequences of widowhood,” they write.

Shymko suggests several strategies for advisors who wish to help clients avoid such negative consequences, including:

> make sure both spouses are involved early in developing the financial plan and that the spouse most likely to be left alone has the tools and background she needs to be able to deal with widowhood;

@page_break@> emphasize the importance of drawing down capital as the widowed client ages. “Most spouses don’t want to be left in the big residence after the first spouse has gone,” says Shymko. Downsizing can free up funds to provide additional financial support for the survivor. In some circumstances, he says, a reverse-income mortgage may be appropriate;

> ensure that couples make provisions for long-term care in the event of illness of a surviving spouse;

> simplify the couple’s financial arrangements, so the surviving spouse will find it easier to manage.

Evans adds that an advisor working with a new widow should emphasize the importance of avoiding any kind of major decision for at least one year after the death of a spouse.

Eventually, the advisor will want to make sure the widow’s own estate plan is up to date, income is structured to provide financial security and there is a plan for the widow’s long-term health or care. This approach to planning is holistic and not just financial, she says.

The StatsCan study found widowhood creates sharp differences between men and women with respect to the incidence of low income, especially over the long term. Although the low-income profiles of senior widowed women and men were similar to begin with, in the following years the low-income rate rose at a much faster pace for widows than for widowers.

After five years of widowhood, the low-income rate of widows was almost five times higher than their rate one year before the death of the spouse. The rate for widowers was about 2.5 times higher (see top chart).

Bernard and Li note that even though widows and widowers have different low-income rates, they face similar challenges. Once they slip into low income, it is very difficult to climb out. Looking at a five-year period of widowhood, the authors found dropping into low income was a temporary phenomenon only for one-third of widows and widowers. IE