Mortality Risk and Household Insurance in the U.S.

This paper analyzes how the death of a spouse affects household income, and compares the effects on widows just below and just above the age-60 eligibility threshold for Social Security survivors’ benefits. The analysis uses data from federal income tax returns, W-2 forms reporting wages, SSA-1099 forms reporting Social Security benefits, and 1099-R forms reporting other retirement benefits for the years 1999-2011. The paper finds that:

- On average, accounting for earnings, most government transfers, and distributions from retirement accounts, household income declines by about $25,000 following the death of a spouse. This translates to a net decrease of $5,500 when adjusted to per capita terms.

- While other forms of income also matter in widowhood, Social Security survivors’ benefits play a prominent role in providing income security. These benefits supplement household income, crowding out very little of what is received from other sources. Every $1 of benefits from Social Security survivors’ insurance translates to a $0.93 increase in overall household income.

- Household with a widow just below the age of eligibility for survivorship benefits experience a decline in overall income of 41 percent, and an increase in labor supply of 7%. Households just above the age of eligibility for survivorship benefits experience a meaningfully smaller decline in income of 34 percent, and no increase in labor supply.