UPDATE: I have an answer. We believe he's alive in his grave, and at the time the words were spoken, he wasn't buried. I know for a fact by asking a Shaykh and Mufti that the timing is true [:
Still be glad to hear other people's point of view-as long as it ain't rude/disrespectful.

In a Sahih Hadith in Bukhari, it is narrated:
"Abu Bakr narrated 'Whomsoever worshipped Muhammad, let it be known, Muhammad is dead, and whomsoever worshipped ALLAH, ALLAH is the all-living and alive".

This hadith was narrated by Abu Bakr after the demise of the Prophet (peace be upon him), and Umar (peace upon him) threatened to cut off the heads of anyone who said Muhammad is dead. Abu Bakr then spoke these words aloud in front of all Sihaabah.