Losing a partner is one of the most devastating life experiences. Early into the grieving process, many spouses and life partners are faced with what feels like an insurmountable task – planning for the future. Finances are often the most overwhelming, yet necessary practical matters to attend to. To help make this delicate transition a little easier for you, we’ve organized 8 financial planning tips for widows and widowers.
Assess the Finances
Before you start making changes to your financial situation, it’s important to assess your current finances and what will change following the death of your partner.
Start by first gathering all relevant documents, like wills, life insurance policies, bank statements, investment account statements, deeds, and other financial records. These documents will help give context to your financial situation and enable you to better sort through your financial affairs. It is also important to have a copy of your spouse’s death certificate on file, as this will be needed for various claims.
During this time, create a list of all assets, debts, anticipated income, and expenses. While assets and debts likely won’t be impacted following your partner’s passing, income and expenses will. We’ll touch on social security benefits next, but for now take stock of how any dip in your income will impact your expenses.
Enhance Your Financial Security with Social Security Benefits
When offering financial planning tips to widows or widowers, social security benefits stand out as one of the most important “to-dos”. But, if you’ve never applied for social security benefits before, this part can feel overwhelming. Before we get into how to claim social security benefits and the optimal time to claim, let’s first dive into eligibility.
Social security is a form of financial assistance provided to eligible individuals by the United States Government. Though the Government is the distributor of benefits, it’s the taxpayers who fund social security via a payroll tax taken from each worker’s paycheck. According to the Social Security Administration, employers and employees each pay 6.2% of wages up to the taxable maximum of $160,200, while self-employed workers pay 12.4%. Contributions help fund Medicare and Old Age, Survivors, and Disability Insurance (OASDI), which are then distributed to retirees, those with disabilities, and surviving individuals.
Social security acts as a safety net following the passing of a spouse. In order to qualify for social security benefits following the death of a spouse, the widow or widower must be:
- Surviving spouse aged 60 or older (age 50 or older if the deceased spouse had a disability)
- Married to the deceased spouse for at least 9 months (certain exceptions apply), or the marriage must have produced a child
- Not remarried before the age of 60 (or 50 if disabled)
If you have dependent children under the age of 18 (or up to age 19 if still in high school), they may be eligible for survivor benefits, as well.
The amount of benefits you will receive depends on how much your spouse paid into the payroll tax and for how long, along with when you start claiming benefits. Alongside the monthly income, surviving spouses may also be entitled to a death benefit, which is a one-time lump sum payment of $255.
In order to apply for social security benefits as a surviving spouse, you must contact the Social Security Administration immediately following their passing at 1-800-772-1213 (TTY 1-800-325-0778). The SSA has provided a helpful list of documents needed in order to apply for benefits.
Although the amount may differ depending on how much was paid into social security, if the surviving spouse is at full retirement age, they would receive 100% of the deceased’s benefit. If younger than full retirement age, there is a sliding scale between 71.5% and 99%.
Benefits are not retroactive, so it’s crucial that you apply quickly in order to receive maximum benefits possible. Because it will take time for the Social Security administration to process your request, and it will take a couple months to receive benefits even after the claim is approved, it is important to have a solid financial cushion.
Creating a Budget
Now that you’ve assessed how your income will impact your daily living expenses and begun receiving supplemental income through social security, it’s time to rework your existing budget.
If your income has changed significantly where you need to adjust your living expenses, first consider where your dollars are being spent. If helpful, categorize your typical monthly spend into buckets like utilities, rent/mortgage, food and beverage, entertainment, and investments. This will provide color into which categories may need to be scaled back or where your money may be better spent. Mobile apps, like EveryDollar and Mint, can help bucket spend easily by linking your bank account to your mobile device.
If leaning into a mobile app isn’t for you, consider connecting with a financial advisor who can help assess your finances and prepare a budget that best meets your financial goals.
Now that you have a firm understanding of your budget, it’s time to pay down any outstanding debt.
Paying down debt can become a healthy financial habit. If you have additional funds leftover at the end of the month, consider making an additional payment to any outstanding debt. Paying even slightly over the monthly amount can reduce interest payments over the life of your loan and give you more money to spend long term.
For outstanding debt specific to your spouse, start by first notifying creditors of the death as soon as possible. If there is an estate plan, the estate executor is responsible for distributing assets and paying off remaining debts, but if not, you will likely go through a lengthy probate process where the court will review the will and settle debts according to state law. In community property states, a surviving spouse may be responsible for their spouse’s personal debts incurred during the marriage.
Plan for the Future
Looking ahead can be a challenging, but important task. In terms of your financial future, start by creating new financial goals and objectives for yourself. This might include paying off a mortgage or establishing a college education fund for a grandchild. No matter what the end goal is, it’s key to outline a roadmap on how to achieve the goal and to celebrate small victories.
As part of future planning it is also recommended that you prioritize your emergency fund to build up at least 3-6 months worth of your living expenses to prepare for any unexpected expenses down the road.
Remembering that balancing financial security with personal fulfillment can be a delicate but doable balancing act.
Consider Life and Long-term Care Insurance
Life insurance and long-term care insurance are two different types of insurance products designed to provide financial protection for two very different purposes.
If you don’t already have a life insurance policy you may want to consider it. This type of insurance provides financial protection for beneficiaries in the wake of your passing. This typically helps cover obligations like funeral expenses, outstanding debts, mortgage payments, or any other outstanding financial commitment. When purchasing a life insurance policy, remember to regularly review and update beneficiaries as needed to avoid account limbo.
Long-term care insurance, on the other hand, is specifically designed to cover the costs associated with long-term care services, like assisted living communities, nursing care, home health care, relevant home modifications and more.
At their core, both long-term care insurance and life insurance help offset the anticipated costs during the last stage of life and beyond. When purchasing either of these insurance products, it’s important to understand the policy, any limitations, exclusions, and find a fair premium.
Build an Estate Plan
Another financial planning tip for widows and widowers comes in the form of an estate plan. If you don’t already have any of the estate planning documents, like a will, power of attorney, medical proxy, and living trust, now is the time to connect with an estate planning attorney and pull together a plan.
An estate plan is a set of documents that detail how an individual would like their assets to be dispersed and how their affairs should be managed during their lifetime and following their passing. A qualified estate plan attorney can help iron out which documents are needed within your estate plan and how to best protect your assets.
You can also work hand-in-hand with an investment advisor with unique expertise in trustee investing.
Consider Working with a Professional Fiduciary
With many of the families we work with, it is not uncommon for one spouse to be in charge of finances and budgeting. When that spouse passes away, it can be overwhelming for the surviving spouse to pick up the pieces.
For scenarios like this, there are professionals called fiduciaries who can assist with daily money management (i.e., paying bills, checkbook balancing, etc.) and the complexities of estate administration. Although most people are not as familiar with this profession, our firm specializes in working with fiduciaries around the United States. Fiduciaries can be an invaluable help to widowers and others who are in a new process of organizing their financial household without the help of their loved one.
Find a Financial Professional
Our final financial planning tip for widows and widowers is to find a trusted and empathetic advisor who understands your needs. The grieving process can be taxing, both physically and mentally. Seeking guidance from a financial advisor can help reduce overload, while ensuring your assets and legacy are protected.
Prudent Investors can help organize and simplify your life through a financial planning process tailored to your goals in the wake of your loss. Our advisors begin by assessing your current financial situation to get a better sense of your financial needs and from there work with you to create long-term financial goals that enhance your financial outlook. We work with many surviving spouses to help achieve debt elimination, asset accumulation, retirement planning, long-term care planning, and more.
If the thought of financial planning in the wake of losing your spouse feels overwhelming or if you’re looking for more financial planning tips for widows or widowers, consider reaching out to Prudent Investors for a complimentary consultation.