We’ve had several clients unfortunately lose their spouses (some at a very early age) over the past few years. So today, I want share with you how we helped out in those difficult situations and how financial planning has benefitted them.
By far, the biggest thing that we hear when someone loses a spouse is that they feel extremely unorganized. They have so many thoughts on their mind and so many tasks to accomplish and they are not even sure where to start.
PROVIDING A TO-DO LIST
To remedy this feeling of being overwhelmed and unorganized, we take widows and widowers through a financial planning process. We discuss many different things and end out providing them with a To-Do List.
We tell them exactly everything that they need to do. And we are here for them when any other issues pop us as they’re going through this difficult time.
FINANCIAL PLANNING PROCESS
In many cases, widows and widowers don’t really know what to do when they’ve lost a spouse. This is likely a situation they’ve never been in before. Beyond contacting the funeral home, they don’t really know what all needs to be done. To top it all off, they are grieving and not really in a position to line everything up.
In these situations, we’ve provided a road map to surviving spouses to help them know:
Whether or not they should stay in their current home
We’ve seen situations where the surviving spouse thought they needed to move out of their house, but after running the numbers we were able to tell them they could stay put if they wanted.
We’ve also seen situations where we had to recommend that a spouse move into a more affordable place. While not a fun conversation to have, it is necessary to protect the widow / widower from running out of money or jeopardizing their other goals.
If staying in the home is a top priority, then it will be important to determine whether any other adjustments to the finances need to be made in order to accomplish this goal.
If their retirement picture is on track
When a spouse dies, income likely goes down, which often times means that less is now being saved toward retirement. Hopefully there is life insurance in place to make up for this loss. But none-the-less, it will be important to do some analysis to determine if you are still on track for retirement. And if not, what can be done to remedy the situation.
If you are already retired when your spouse dies, you’ll only be able to count on one Social Security income instead of two. As a result, you may now have to withdraw more from your investment accounts to make up for the difference. In these situations, financial planning helps to determine whether or not your investments are projected to run out. It’s better to find this out right away rather than later when it may be too late to do anything about it.
How to handle life insurance proceeds
If there is life insurance proceeds, then it’s been our experience that surviving spouses get really nervous with a sizable amount of money sitting in their checking or savings account. Or in some cases, the check never gets cashed and just sits on the kitchen table, countertop, or dresser at home. Either way, there is a great sense of nervousness and stress.
The financial planning process can help to determine what needs to be done with the money. It will help to answer questions such as:
– How much money should be kept in checking and savings?
– Should the mortgage should be paid off?
– How much should be invested (towards retirement, children’s college, other purposes)?
– Should other debts be paid off?
– Can I buy a new car?
– Can I use some of the money to fix up the house?
These are the types of questions that pop up and it’s important to address them and properly plan for them so that you don’t make a decision that hurts you down the road.
One of the biggest temptations when a person receives a large amount of money is to pay cash for large purchases (i.e. car or house) or pay off debt. Depending on the situation, the decision you make here could have negative consequences for a long time to come. Financial planning can help you make an informed decision.
What to do about pension benefits owed to you
Should you take the pension benefit early (if available) or should you delay it to get a higher amount? What about the strength of the pension plan? If the pension plan does not have enough money to cover all of the pensions that have been promised, then you’ll have to determine whether or not you want your money sooner rather than later.
We had a client recently receive a surviving spouse pension and we recommended that they take the benefit early (even though it was reduced), because the pension plan was severely mis-managed. We were fearful that if the client waited to receive the pension then there may be nothing there later.
What to do with investment accounts
The planning process will identify a number of things regarding your investments.
First, it will identify how investments are titled and who the beneficiaries are. If anything was in your deceased spouse’s name alone, without a beneficiary listed, then it will have to go through probate (the court supervised process of passing the investment on to the rightful heir).
Second, it will determine which investments you own and whether or not changes should be made. Perhaps you are taking on too much risk, or not enough in order to reach your retirement goals.
Third, the planning process helps to identify how much money should be saved to your investments. Or if you are in retirement, the planning process will help you to know how much money needs to be withdrawn from your investments and from which accounts this money should come.
Fourth, if your spouse had a 401k, you will likely receive paperwork asking you to make a decision on what you should do with it. Surviving spouses have a lot of choices here. Do you keep it at the 401k level in your deceased spouse’s name? Do you transfer it to your name at the 401k plan. Do you roll it over? For more information on this topic, read Should You Rollover Your 401k?.
What needs to be done to get your estate planning in order
Proper estate planning is intended to help you determine how to handle your deceased spouse’s assets and what steps need to be taken right away.
Additionally, you’ll want to make sure that you properly title and beneficiary all appropriate investments so that your future heirs don’t end up with a mess. You may know what I’m talking about if you are currently dealing with a situation in which proper estate planning (or no estate planning) was done. The financial planning process will help you to avoid this.
While losing a spouse is a very traumatic and painful time, the financial planning process can help to alleviate some of the discomfort.
Financial planning won’t replace a loved one, but it can provide widows and widowers with a sense of organization and peace of mind as key financial issues are addressed.
If you are recently widowed and need some help getting organized and talking through your situation, feel free to Contact Us or set up an Introductory Meeting. Also I would encourage to read Your 1st Year as a Widow: Top 10 Things To Do Right Away.
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