Losing a spouse can be devastating. Some people describe that bereavement as so potent it feels like they have lost a limb. For many, figuring out how to live without their long-time ‘partner in crime’ is a heart-wrenching, tough process. And probably the last thing you want to think about while grieving is your finances. Unfortunately, some decisions about your wealth need to be made within a specific period. So hopefully these four steps will help ease the burden during this difficult time.
1. Don’t rush your financial decisions
The period right after losing a spouse can be painful. It is essential to avoid any hasty financial decisions, especially if you are stressed. Instead, focus on the most pressing decisions, such as taking care of funeral arrangements and paying your immediate bills. Break down all the tasks that need to be done and prioritize them. If this is difficult to do, ask friends or family to help.
However, there are some urgent tasks that you’ll need to do. For example, you will need to notify the Social Security Administration (SSA) or, if your late spouse had one, their pension administrator. For other big financial decisions, waiting at least a year (as long as it isn’t urgent or under a deadline) may stop you from making emotional decisions that may not be in your best long-term interest.
2. Collect all documents
Conduct a thorough review and organize your financial information. Start by taking inventory of your late spouse’s assets, such as retirement accounts, insurance plans, and estate documents. Once you have the necessary documents, contact insurance companies to claim any life insurance policies. You will also want to reach out to your financial and investment firms to have any joint accounts retitled. However, you may want to keep some accounts open and in the name of your late spouse if you’ll be receiving money in that name.
Each financial institution may have different policies when retitling assets. So whenever you are talking with financial companies, the SSA, or other service providers, keep detailed notes with case numbers, account numbers, and call details. This recordkeeping can help you from becoming overwhelmed and provide records of your conversations. Here’s where a team of professionals—a wealth advisor, tax professional, and estate lawyer—can come into play. They can help you make heads or tails of what needs to be done and how best to approach the transfer of assets.
3. Understand your financial situation
The next step is to organize all your bills and expenses. Most people expect that if they lost one-half of their couple, then their expenses would decline by 50%. Unfortunately, that is not usually the case. Generally, costs often decline by much less with the loss of a spouse. That’s because many fixed costs remain intact regardless of how many people utilize them. So make a list of utilities, mortgage or rent payments, credit cards, loans, and other bills.
Also, determine your updated income. For example, if your spouse was receiving Social Security, a pension, or had an annuity, understand the survivor benefits, if any.
Take Social Security, for instance. If your spouse was collecting Social Security benefits, the monthly payout will stop beginning the month of death.
Suppose you are the surviving spouse of a person who qualified for Social Security. In that case, you may be able to receive their benefits—although potentially at a reduced level. Some may begin as early as age 60. If you already receive benefits as a spouse, they will automatically convert to survivor benefits after the SSA learns of your spouse’s death.1 However, if you remarry before age 60, eligibility to claim on your deceased spouse’s record may be negated.1
What if you qualify for Social Security on your own? You can still apply for your late spouse's benefits at age 60, then if yours are higher, you can switch at age 62.1
There are other provisions for benefits as well. For instance, if you have not remarried and care for a child under the age of 16 or who has a disability, then you can receive benefits at any age. Or you can receive benefits as early as age 50 if you have a disability and the disability started before or within seven years of your spouse’s death.
Finally, calculate a new budget. It will help you get an accurate picture of your finances, how much you can spend, and specify what you plan on using for retirement.
For your retirement snapshot, calculate your updated net worth to help you decide how to handle various pools or retirement assets. For example, if you are a younger widow, you may not want to roll your late spouse’s IRA into your IRA since you can’t access it until you reach 59½. If your spouse’s 401(k) plan allows it, you could leave the money in the plan and take withdrawals without an early withdrawal penalty. If you are over 59½ and want to maximize the tax growth potential, you may want to roll it into your IRA to delay taking required minimum distributions.
Your tax bracket may also change after your spouse passes away since you have a change in marital status. Tax status is determined on December 31st of each year, so as of that date, you may need to file as “single” or if you care for dependent kids, you may be able to file as a surviving spouse (a special status that carries the same benefits as “married, filing jointly”). These changes can result in a higher tax rate, loss of certain tax breaks, or a smaller standard deduction, even if your income is lower. A tax professional can guide you through this process.
4. Work with a wealth manager
Doing all of this alone can be intimidating, especially if you are not already managing your finances. A wealth advisor can help you through these steps and provide customized advice to meet your needs. In addition, they can help you organize and understand your finances as you adjust to life without your spouse. With so many decisions that you need to make, it is crucial you know the long-term impact of them.
A wealth advisor can also help you understand how to maximize your retirement portfolio, and any assets passed down from your late spouse. So as you navigate through this emotional time, know that you don’t have to do it alone. Instead, count on family and friends to help meet your emotional needs and surround yourself with a team of professionals who can ease the burden of financial and other rudimentary decisions. Here’s a checklist to help.
Financial Checklist for a Surviving Spouse
1. Contact financial institutions that have a time limit on when changes need to take effect. Examples include:
- Social Security Administration
- Spouse’s pension administrator
- Life insurance company
2. Organize financial information
- Compile a list of investment, retirement, and bank or credit union accounts
- Itemize other assets
- Write down monthly expenses
- Determine new monthly income
- Create a budget
3. Implement a new wealth plan
- Find a team of professionals–wealth advisor, tax professional, estate lawyer–to help you navigate the requirements and decisions surrounding your wealth
- Understand your new tax status
- Know annual IRS requirements for minimum distributions (RMDs) and other financial decisions
- Determine which accounts should stay as is and which should transfer
- Set life goals and wealth objectives
- Establish time frames for each goal
- Draw a roadmap for achieving your goals
- Review your plan regularly
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