Prepare for the monetary shock of widowhood
When you lose your mate, you lose so muchâyour best friend, your equilibrium, your future together. And just when youâre at your lowest, it hits you: You could lose a lot of money, too.
Your finances may crash in myriad ways just when youâre dealing with grief. Among them:
- If your spouse was still workingâand the average age at which women become widowed is 59, according to the Census Bureauâyou may lose much or all of your household income.
- If youâre both retired, your household may go from two Social Security benefits down to one.
- Your tax rate may rise, now that you will be filing as single.
- You may lose access to credit cards you thought were yours but that were established under your spouseâs name.
- Availability to savings, retirement accounts and investments could be delayed or even blocked if beneficiary information wasnât properly filled out.
- You may miss out on expected inheritances if your spouse was unlucky enough to die before his or her parents did.
- You may need to pay someone to do the many things your spouse did for you, from lawn care to home maintenance.
- If youâre widowed from a second marriage, your spouseâs assets may go to first-marriage children, not you.
Of course, the best time to deal with all of this is before the death. Financial advisers are comfortable doling out reams of pre-death planning advice: Update your beneficiaries on all your accounts! Get adequate life insurance! Make a list of accounts and passwords and monthly payments to be made! But after heâs gone? Not so much. (Note that it is usually a âhe,â as 58 percent of women and 28 percent of men 75 and older are widowed. Iâll use those genders when writing this, but it applies to all.)
After heâs gone, thereâs more pain and fewer options. âI think a lot of people become widowed and lose their mooring so much that they canât manage the decision-making,â says Karen Altfest, a New York Employee who works with older female clients. But the situation isnât hopeless, and these financial strategies can protect your bottom line while you navigate your new future and your grief.
GET THE RIGHT KIND OF HELP
Even if youâre a DIY person when it comes to your money, it helps to have a professional look at your whole new financial life. Which accounts need to be switched, moved, renamed or rethought? Can you still afford your home? Whatâs your optimal insurance and retirement strategy moving forward?
CHECK YOUR OWN INSURANCE
If you are still working and supporting kids, you may need to bump up your own life or disability insurance, says Ken Weingarten, a Lawrenceville, New Jersey, financial adviser. You may also want to take another look at long-term care insurance or make other plans for how you will receive care if you need it down the road, he adds. âMy personal experience colors this,â says Weingarten, whose mother died young after several years in a nursing home.
BE SMART ABOUT SOCIAL SECURITY
If you and your spouse were already drawing benefits, you will be able to elect the higher benefit going forward. If you yourself havenât claimed any benefits yet, you have a choice: You can take either your survivorâs benefit based on your spouseâs work history, or the retirement benefit based on your own record. You then can switch to the other benefit, if it ends up being higher, later on.
KEEP THE 401(K)
Are you still in your 50s? Although itâs possible to roll your husbandâs 401(k) or IRA money over to your own retirement account, donât rush to transfer the 401(k), Weingarten warns. As a widow, youâll be able to withdraw money from your late husbandâs 401(k) whenever you need it, regardless of your age, without paying a 10 percent withdrawal penalty. (It will still be taxable as ordinary income.) If, instead, you move the 401(k) to a rollover IRA, youâll have to pay a 10 percent penalty on any withdrawals from that IRA before you turn 59 ½, as well as the taxes.
TAKE A TAX OPPORTUNITYÂ
If your family income doesnât fall substantially when you are widowed, you may be bumped into a higher tax bracket, because the income cutoffs for filing singly are much lower than they are for couples filing joint returns. So make the most of your more generous tax treatment in the year of your spouseâs death, when the IRS still lets you file as a married couple, suggests Carolyn McClanahan, a Jacksonville, Florida, financial planner. In that year, take taxable withdrawals from 401(k) or IRAs so that they take full advantage of whatever bracket youâre in, even if you use the money to create a rollover Roth IRA or just to put some extra in your non-IRA savings account.
LINE UP YOUR CREDIT CARD
You may be surprised to learn that you may not be an equal account holder of your credit cards. You may be listed as just an authorized user of a card that is entirely your husbandâs account. If thatâs the case, the card issuer will eventually learn of your husbandâs death and cancel the account. Donât wait for that, McClanahan says. Let the company know of your husbandâs death. âMost issuers will work with the spouse to get them a card,â she says. Better yet is to take preventive measures while your spouse is still with you: Either establish joint credit card accounts (in which both of you are liable for making payments) or become the primary owner of at least one card.
DONâT RUSH THE BIG STUFF
Youâve heard it before, but donât be in a hurry to move, sell a house (or even a car) or write big checks for your kids in the immediate aftermath of a death, McClanahan warns. You may regret choices made in haste and grief. And you can always settle your finances and your life later on.
https://www.aarp.org/money/investing/info-2022/financial-plan-for-loss-of-spouse.html