Navigating the Storm: Financial Planning for Widows
The sudden loss of a spouse is an emotional tidal wave, often crashing into a period of overwhelming grief. It's a tough time in life, but important money choices need to be made right away. Managing retirement accounts, adapting to a single income, ensuring proper insurance, and navigating Social Security benefits are just a few pressing matters that arise.
Some decisions, such as estate planning and taxes, have deadlines and should be discussed with a lawyer or accountant promptly. Their professional guidance and objective clarity can be invaluable during this emotional rollercoaster.
But it's not all about crisis response. Preparation before the storm can be your anchor in the choppy waters of grief. Take the time to familiarize yourself with your financial landscape - income, expenses, advisors, estate plans, and important documentation. This knowledge empowers you to make informed choices, not emotionally-driven ones, when facing the reality of being single.
By planning ahead, you'll be better equipped to take these six crucial first steps. These steps can safeguard your finances and provide a solid foundation for rebuilding your life after a profound loss.
Update Financial Accounts
Following the loss of your spouse, navigating joint financial accounts can be a sensitive but necessary step. To secure your financial future, update the account registrations to show that you are the sole owner. This makes it easier for you to handle your money after your spouse dies, by giving you control and confidence.
Divide or Rollover Assets
Distribute or transfer your retirement assets wisely when inheriting pension and retirement accounts from a deceased spouse. Upon the account owner's death, these assets typically pass directly to designated beneficiaries, often the surviving spouse. It's important to update beneficiary designations on retirement accounts like 401(k)s, 403(b)s, and IRAs.
In the case of IRAs, the surviving spouse becomes entitled to their partner's IRA assets as the designated beneficiary. If you choose to inherit and roll over your spouse's IRA into your own, mandatory minimum distributions (RMDs) must commence at age 73. Be cautious of a potential 10% early withdrawal penalty for taking out funds before age 59½. Rolling over your spouse's IRA can be advantageous if you're younger than 73, aiming to maximize tax-deferred growth.
If you are under 59½, you can avoid the 10% penalty for withdrawing money early. This can be done by moving the funds to an inherited IRA. The timing of RMDs will depend on your spouse's age at the time of their passing.
Adjust Income and Budget
Adapt your income and revise your budget to align with life changes. In the aftermath of a sudden shift to a single income, it's essential to reassess your financial plan.
First, organize your important costs. These include housing, food, insurance, and transportation. After that, you can focus on optional expenses like eating out, trips, and clothes.
Align your reliable income sources, such as salary, Social Security, or pension, with essential expenses. Identify areas for potential cuts in discretionary spending. Utilize our Budget Checkup to create a well-balanced budget.
If you are close to retiring or already retired and concerned about insufficient funds, consider obtaining an income annuity. This will provide a reliable source of income. These products turn some of your retirement savings into a steady income, ensuring lifelong financial stability.
Evaluate Insurance Needs
Assess your insurance requirements following the loss of a spouse, as your coverage needs can undergo significant changes. Carefully examine the various insurance types available to identify necessary adjustments. Evaluate the following:
Life Insurance: As the surviving spouse and beneficiary, life insurance proceeds are typically received tax-free. If you care about children, buy or increase your life insurance to protect them if you die.
Health Insurance: If your spouse held the family's health insurance, you can maintain coverage for a certain period post-widowhood through COBRA, lasting up to 36 months by paying premiums. Look into other insurance choices like employer or ACA plans, as COBRA coverage is expensive and short-term.
Disability Insurance: Often overlooked but highly valuable, disability insurance safeguards against lost income if you're unable to work due to illness or injury. This coverage is available through employers or the private market.
Long-Term Care Insurance: Consider acquiring long-term care insurance, especially if you're in your 50s or older. This insurance protects your income from the costs of nursing home stays or home health care. It covers you in case you get seriously ill or injured. Take proactive steps to secure comprehensive insurance coverage for your evolving needs.
Review Your Credit
Examine your credit profile carefully in the aftermath of a significant life change. As a suddenly single individual, your credit stands as a crucial asset, warranting vigilant protection.
After your spouse passes away, obtain a copy of your credit report. This will allow you to review all of your accounts, including those that were jointly held with your spouse. You can access a free copy of each of your three reports annually through AnnualCreditReport.com.
Contact Experian, Equifax, and TransUnion to let them know about your spouse's death. This will stop anyone from trying to use their name to get credit without permission.
Sometimes, a surviving spouse may have to pay the debts of their deceased spouse, like credit card debt. In community property states or situations where joint responsibility for debt was assumed, the surviving spouse may bear the responsibility of paying the deceased spouse's debts, potentially impacting their credit.
In other states, the person in charge of the deceased spouse's estate settles debts, protecting the surviving spouse from credit problems. Regardless, regular credit score reviews are advisable to promptly address and rectify any discrepancies.
Maximize Social Security Benefits
Optimize your Social Security benefits as a surviving spouse, even when navigating life independently. Social Security recognizes your past marital status and extends benefits to surviving spouses. You can receive monthly benefits based on your deceased spouse's earnings record at your full retirement age or opt for reduced benefits as early as age 60. In the case of a disabled widow or widower, spousal benefits can be accessed as early as age 50, provided the disability commenced before your spouse's death or within 7 years.
Carefully explore your options regarding when to initiate Social Security benefits. Delaying the process until your full retirement age or beyond might prove financially advantageous.
When you qualify for Social Security, you cannot receive both your benefits and your late spouse's benefits simultaneously. Instead, you will only receive the higher amount. Instead, you'll receive the higher amount.
Additionally, conduct a thorough review of beneficiaries listed on your accounts, including those associated with your late spouse. Update the beneficiaries and revise your estate plan after losing a spouse for better financial planning.
Bottom Line
Losing a spouse is tough, but understanding how it affects your money can help you make better choices. This information can help you adapt to being single and be more cautious with your money.
Sources:
https://www.fidelity.com/viewpoints/personal-finance/suddenly-single
Disclosures:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
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This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.