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Preparing for Financial Life After Your Partner Passes

By Joshua Goulding June 30, 2021 Managing Money

Losing a spouse is one of life’s greatest challenges and an inevitability that many people will face. The ensuing grief from the trauma makes it critically important to have a clear approach towards financial decision making. Losing a spouse poses real financial risk to many households. This risk primarily affects women because they are more likely to be the survivor.  

Big Financial Decisions Should Wait

The death of a spouse is well recognized as the most stressful of all possible losses. The emotional and physical toll can lead to poor financial decisions in the first year following a spouse’s death. Out of fear and inescapable grief, it is natural for widows to want to make changes to their external life, like selling their home. It is important to resist the urge to make big financial decisions like these.

The most important thing you can do during the immediate aftermath is contact a trusted family member or CPA, estate attorney and/or financial advisor. Getting organized and up to speed on all the financial accounts, income streams and expenses takes time. This is especially important if your spouse handed the household finances.

Meeting with financial professionals helps you proactively focus your actions and attention on acclimating to your new reality without making major financial decisions.

Create a Comprehensive Financial Plan

The meeting with the CPA and estate attorney will create action items that need to be taken care of immediately following death: filing final tax return, claiming insurance benefits, and alerting Social Security.

Beyond this, going through a comprehensive financial plan will provide you with a bird’s eye view of your financial situation and give you clarity as to what your future looks like. A large percentage of widows suffer from a decline in income when their spouse passes because they lose a portion of the Social Security or pension income they were receiving. In addition, the responsibility for managing the bills and investments now falls on them.

Going through a financial plan mitigates the overwhelming feeling on not knowing what your financial future looks like. It gives you a roadmap to follow to help you stay on track to meet your goals and alleviate your biggest fears, like running out of money.

For example, if your Social Security income declines from $60,000 per year to $40,000 per year, you will need to take more money from your investments to continue a similar lifestyle. If the additional $20,000 from investments does not change the trajectory of your long-term asset base, then you are likely okay taking that additional money.

If, however, the plan is now showing a likelihood of running out of money at your age 80, that requires a lifestyle adjustment. In extreme circumstances, it may mean going back to work or working longer, if those are feasible options. By understanding and seeing the interconnectedness of your income, expenses and investments, you can better plan for the future.

Another example of where a financial plan is valuable is in determining how life insurance proceeds should be allocated. Life insurance proceeds are income tax-free and are received as a lump sum payment. Deciding whether to invest that money in the stock market or pay off the mortgage can have long-term consequences.

Some widows may have a lower risk tolerance than their spouse and feel more secure by taking that money and paying off the outstanding mortgage rather than investing those proceeds. The financial plan will be able to compare the two scenarios to better inform which decision is right for you.

Updating Your Estate Documents and Beneficiaries

Once you have taken time to digest your new financial reality and create a financial plan based on your new situation, it is important to update your estate planning documents.

Who is going to make medical decisions for you if something happens to you? Who is going to pay your bills if you are hospitalized? Who is going to receive your money when you eventually pass? All these issues need to be addressed since your deceased spouse may be listed as the primary beneficiary, and attorney-in-fact on all your accounts/documents.

As part of this process, it can be useful to go over your estate with your adult children and let them know what role you want them to play in managing your estate, while you are alive and after death.

When your spouse dies, your world is flipped upside down. Unfortunately, the financial realities of paying bills do not stop. Having a process in approaching your new financial reality will give you more confidence in a world filled with fear, uncertainty and doubt.

Working with licensed financial professionals whom you trust, delaying major financial decisions, creating a financial plan that matches your new financial reality, and updating your estate plan to properly protect you and your loved ones will provide some stability during a time of grief.

Have you and your spouse created an actionable plan that will help either of you when the other one passes? How did you come up with this plan? If your spouse is deceased, how did you handle the transition? Which financial decisions were good, and which were poor? What would you do differently if you could go back in time? Please share your practical tips for those in a similar situation.

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The Author

Joshua Goulding is co-founder of 4J Wealth Management in Alexandria, VA. He is a CFA Charterholder and a CERTIFIED FINANCIAL PLANNER™ practitioner, teaches retirement planning classes and webinars and is a contributor to U.S. News and World Report. Josh is passionate about helping people manage the multidimensional issues facing retirees – monetary and lifestyle. Josh can be contacted at Josh@4jwealth.com.

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