Financial realities surrounding widowhood are often bleak, especially for women, who are significantly more likely to outlive their male partners. The emotional turmoil of losing a spouse is compounded by the sudden financial insecurity during one of life’s most difficult transitions. Even couples who were once high earners or have substantial assets are not immune to making significant mistakes that result in prolonged difficulties for the surviving spouse.
By taking proactive steps and proper planning, couples can minimize the challenges faced by widows and secure their financial well-being.
Protect Future Pay with Life Insurance
After graduating from college, my husband and I were living in a one-bedroom apartment in San Francisco, three blocks from Pier 39. I loved that apartment. I was also constantly worried that if something unexpected happened to one of us, in addition to dealing with crushing grief, the other would be forced to uproot their entire life because neither of us could afford to continue living there alone. Luckily, nothing terrible happened, and years later, after transitioning to a career in financial planning, I learned about the beauty of life insurance for this exact purpose.
When it comes to deciding how much life insurance you need, do not underestimate the value of future earnings. Very few couples would be financially unimpacted by the loss of an earning spouse. The present value of future earnings for someone who is 35 and earning $75,000 per year is nearly $1.5M, assuming they plan to work for another 30 years. And that doesn’t account for future salary increases. When in doubt, err on the side of caution and get more coverage than you think you need.
The good news is that term life insurance is inexpensive and easy to get. Don’t rely solely on the insurance coverage offered by your employer because it is very likely not enough on its own (see $1.5M example above), and you lose it when you change jobs. Instead, opt for a private policy and get it sooner rather than later because you’ll be required to take a health assessment, and the healthier you are, the less you will have to pay for the protection.
Share Login and Account Information
I was clearly destined to be a financial planner because in addition to the nagging question I had in my 20’s about how I would afford my lifestyle if my husband were to unexpectedly pass away, I’ve always been concerned about how I would navigate our online financial landscape without him here. In an era of online and paperless banking, understanding where accounts are held, their links, usage, and login credentials becomes vital.
Collecting information about account access is crucial; the method is less important. For years, my husband and I used a piece of paper to stay up to date on where our accounts were and to track current passwords. This past year, in an attempt to bolster our defenses against identity theft, we transitioned to a password-management software. It matters less how you stay on top of this information, just that you do. This is something I recommend that every couple do routinely, ideally at every financial date night.
Understand Your Estate Plan
It’s not enough to slap a beneficiary on an account or create a simple will and call it a day. Take a minute to make sure that you understand your estate plan, and that it makes sense.
I worked with a woman whose husband unexpectedly passed away and left everything 50/50 to her and their one-year-old child. In his mind, I’m sure it was a logical plan. In reality, it was a nightmare for his newly widowed young wife. Fifty percent of their money was not enough, and the 50% left to their child was not left in trust, so she was forced to petition the court every time she needed to request a distribution from her child’s account. The result was a bureaucratic nightmare that she will be dealing with for 20 years.
Although all states have laws in place protecting against complete disinheritance of a spouse, most only guarantee the surviving spouse between 30-50% of the estate, and these consequences, whether intended or not, often aren’t reversible.
Prepare for Consistent Cash Flow
Appreciate the economies of scale in your personal financial life. One household does not cost twice as much to maintain simply because two people are living in it. Viewed from the opposite lens, expenses don’t reduce by 50% when one spouse dies. Unfortunately, older widows risk losing access to critical income if proper advanced planning isn’t considered.
Those spouses who are already collecting social security benefits will lose access to one of those benefits. Following the loss of a spouse, the surviving spouse will receive whichever spouse’s benefit was higher. For this reason, delaying the social security benefit of the spouse with the higher benefit until age 70 (the latest deferral age) can be an excellent strategy to minimize the step down in income upon the death of the first spouse.
Cash flow for the surviving spouse should also be a consideration when deciding which annuity payout option to select. The highest paying option will always be what’s referred to as “single life”, which will pay out until the account holder passes away, and then cease payments entirely. Couples who will be dependent on the cash flow should consider, at a minimum, the 50% surviving spouse option. The 75% surviving spouse option would be even better.
Make finances a family affair
The number one challenge that I see, repeatedly, as an advisor is a general lack of awareness around family finances. Where the assets are, how much is available, what the estate plan is should be shared between both spouses, saved in a location that both spouses have access to, and discussed regularly. Particularly for women, nearly all of whom will become the sole financial decision-maker at some point in their lives, and who tend to delegate responsibility of the long-term financial decision making to the male spouses in their lives.
By investing a little extra care and planning, gaining knowledge about your assets, and actively participating in your household’s long-term financial plans, you can alleviate feelings of insecurity during what is undoubtedly one of the most challenging experiences in a person’s life.
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