Protect Your Finances if you're Widowed: Tips from a Financial Advisor

Losing a spouse is a profoundly emotional experience, often making it challenging to address pressing financial matters. It's also a time when many financial tasks need quick attention. This includes managing retirement assets and adjusting to a single income. You also need to ensure you have enough insurance coverage and understand Social Security benefits.

Some financial choices, like estate or tax elections, are time-sensitive. You should review them with a legal professional or financial advisor soon after your loss. Their objective guidance can help navigate complex decisions during this trying time.

To avoid emotionally charged and potentially risky financial decisions, it’s essential to prepare beforehand. Familiarize yourself with your financial landscape—your income, expenses, advisors, estate plan, and key documents.

You can help secure your financial well-being if you find yourself facing life alone by planning ahead and following these six steps.

Update Your Financial Accounts

After losing a spouse, it’s important to update shared financial accounts. Make sure to transfer them into your name. This usually requires submitting a copy of your spouse’s death certificate to your financial institutions.

Manage or Transfer Retirement Assets

Retirement accounts, including pensions and IRAs, have specific rules when one spouse passes. Typically, assets pass directly to designated beneficiaries, often the surviving spouse. Be sure to keep beneficiary information current on all retirement accounts.

If you inherit an IRA, you can move it into your own account. However, you must start taking required minimum distributions (RMDs) by age 73. You may face a penalty if withdrawing funds before 59½.

You can also move the assets to an inherited IRA. This avoids the early withdrawal penalty. However, you still need to take RMDs based on your spouse's age.

Reevaluate Your Income and Budget

The loss of a spouse may lead to a decrease in household income. Review your budget, distinguishing between essential expenses (e.g., housing, utilities) and discretionary spending (e.g., entertainment, dining out). Adjust accordingly to match your income sources to essential costs.

Assess Your Insurance Coverage

The loss of a spouse often necessitates revising your insurance needs. Start by reviewing:

●      Life Insurance: If you're the beneficiary of your spouse’s life insurance policy, the proceeds are typically tax-free. However, if you have dependents, you may need to adjust or buy additional life insurance.

●      Health Insurance: If your spouse had health insurance, you might qualify for continued coverage through COBRA for up to 36 months. Since COBRA can be costly, evaluate alternative health plans through the ACA or your employer.

●      Disability Insurance: Protect yourself with disability insurance, which replaces lost income in case of injury or illness.

●      Long-Term Care Insurance: If you are over 50, consider getting long-term care insurance. It can help pay for nursing home or home health care if you get very sick.

Review Your Credit Report

After a spouse’s passing, it’s crucial to review your credit report to assess joint accounts and open lines of credit. Request free copies of your credit reports from the three major bureaus. Notify them of your spouse’s death to prevent identity theft.

In some cases, you might be responsible for your spouse's debt, especially if you live in a community property state or held joint accounts. Keep a close eye on your credit score to catch and resolve any discrepancies.

Maximize Social Security Benefits

As a surviving spouse, you may be eligible for Social Security benefits based on your spouse’s earnings. You can begin receiving these benefits as early as age 60, or as early as 50 if disabled. However, delaying Social Security until full retirement age can increase your monthly benefit.

When you qualify for your own Social Security benefits, you can only receive the higher amount. This could be your benefit or your deceased spouse’s benefit.

Bottom Line

Losing a spouse is a big change in life. However, knowing how to handle important financial choices can help you build a stable future. Reviewing your finances carefully will give you peace of mind as you adjust to life as a single person.

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.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment 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