The death of a spouse constitutes a serious economic risk not only but most notably for single-earner households since normally it causes a decline of the household net income. Whether and under which conditions the survivor suffers poverty depends on how social security protects the survivor against such an income loss. Having single-earner households in mind, social security generally provides survivor benefits that are derived as a particular share of the deceased spouse's gross retirement benefits before death. Such a benefit formula does not provide an appropriate protection because it ignores that fixed costs such as cost of shelter, electricity and heating make up a large part of expenditure, in particular for people in the low income segment.
In contrast to existing studies on the financial consequences of the death of a spouse, the present research deals with retiree households having 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, which allows us to quantify the effect of specific survivor properties on financial vulnerability.
The results show that in a German single-earner household the survivor has to face a net income loss of about 45%. This value does not differ significantly in regard to the household income before the death of the spouse. Moreover, in Germany adjusted net income loss, i.e. net income loss after deduction of fixed cost is above 50% in the low income segment, and even more in the high income segment. The situation would be much worse with no subsistance level for elderly.
Net income loss and adjusted net income loss mainly concern survivors in the low income segment. These survivors are exposed to poverty. The result is startling since the majority of the survivors fall in the region of large income loss.
Keywords: Survivor benefits; Poverty; Welfare; Retirement
Biography: Vera Hofer studied mathematics and law and works in the fields of econometrics and applied statistics. Since 2009 she is assistent professor at the Department of Statistics and Operations Research, University of Graz, Austria.