As a widow, what will happen to my life savings?
How will I keep up with the mortgage?
What happens to those plans I had for travel or retirement?
Surviving your spouse’s death is hard. Determining what’s next can be even harder. The death of a spouse is devastating, but it’s possible to soften the blow by organizing your financial tasks and taking steps to secure your future.
Even if you aren’t widowed, this is an important topic to consider. Women tend to outlive their spouses by seven years on average, and nearly half of those left widowed never remarried. In fact, women spend an average of 10 or more years alone after the death of a spouse.
Read on to learn how to navigate and overcome one of life’s most challenging events.
1. Take a breath.
Moving forward after a loss is understandably very difficult. After the initial shock of loss, you’ll be faced with big decisions, and big changes to your daily routine and your financial situation.
If you’re like the majority of women across America, you took a hands-off approach to the family finances in your marriage. You might have also been one of the 43 percent of women who left the workforce to raise your family.
As you approach the task of rebuilding your financial life, you’ll probably have questions. There are big decisions to be made, and you may be wondering where to begin. You might feel inclined to fill your silence by taking care of responsibilities, but we encourage you to take a moment to let the dust settle.
Avoid making any major life-altering decisions when you’re in a state of emotional flux. High-stress situations are no time to make major life decisions, such as selling your house, quitting your job, or liquidating investments. This also includes purchasing new financial products or reinvesting life insurance death benefits into a vehicle you may not understand.
Because this is a vulnerable time, you’ll want to avoid making costly investment mistakes or falling prey to scams. The last thing you want to do is make a poor investment decision and/or trigger a large taxable event.
2. Check in with your Fiduciary financial team.
When you’ve gathered your bearings, the first thing you should do is set up a meeting with your Fiduciary team. Things have radically changed, and your Fiduciary financial team will help you adjust to those changes. Your Financial Advisor, Attorney, and Tax Advisor will give you a clear understanding of how your financial plan needs to change moving forward.
Your Fiduciary Financial Advisor will help you focus on the most immediate financial tasks. This includes assessing the current state of your finances, and offering recommendations on how and when things need to change over the next few months and years.
Did you know?
When your marital status changes, your tax-filing status changes, too.
That can result in a higher tax rate, the loss of certain tax breaks, and a smaller standard deduction. You may also see a change in their provisional income equation, which determines the tax rate for your Social Security benefit.
For instance, when it comes to your spouse’s IRA, your Tax Advisor and Financial Advisor can offer guidance on IRS allowances to ease your tax burden in the years immediately following your spouse’s death.
3. Stay on top of your documents & documentation
If you’re at the outset, make sure your Funeral Director has notified the Social Security Administration of the death and ordered 15 to 20 certified copies of the death certificate. You’ll need copies for tasks like:
- Retitling the mortgage
- Changing owner names on financial accounts
- Applying for Social Security benefits
- Working with your spouse’s employer to distribute life insurance and other benefits, such as final pay and retirement plan savings
- Collecting private life insurance proceeds
Equally important is keeping detailed notes on everything. This is crucial during the foggy, early days of grief. Use a dedicated notebook to record important tasks and correspondence related to your spouse’s death, as well as current bills due and paid.
4. Organize the bills
Your next step is to make a list of all the utility, credit card, rent or mortgage, and other bills you can find.
- Keep track of all incoming mail and create a separate pile for bills.
- Look through your checkbook and online banking statements to find past and recurring payments.
- If you have access to your spouse’s phone or email account, review apps and email inboxes for electronic notifications of bills due.
Create a list of all your bills, expenses, loans, and other financial obligations, and separate each item by ownership. That will include a list of your accounts, your spouse’s accounts, and your joint accounts. Cancel any subscriptions or services that you don’t need anymore; prepare to send a death certificate to break certain contracts.
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5. Update your assets and estate plan
Your attorney can help update your will, living will, powers of attorney, HIPAA form, and beneficiary forms for your life insurance policy and tax-favored retirement accounts — including your IRA and 401(k) — as needed.
Your Financial Advisor will help you create a timeline of when to close specific financial accounts. (You’ll want to avoid retitling all your joint bank, brokerage, and investment accounts right away if you’ll be receiving money in that name.)
Are you a California resident?
California is a community property state; unless you’ve taken steps to keep things separate, spouses and registered domestic partners generally share ownership of all property acquired during the marriage. Your jointly held property includes the “right of survivorship,” and you’ll automatically own the property upon your spouse’s passing. However, you should confirm this with your legal team before making any changes.
How should I handle retirement accounts after the death of my spouse?
If you’re the beneficiary of your spouse’s 401(k) or IRA, are younger than 59½ and will need to access the money before you retire, you may want to establish an inherited IRA, which allows withdrawals without the typical 10 percent penalty for accessing the money early.
If you are certain you won’t need these funds before 59½, or you have already passed that threshold, you can roll the money into your own IRA and reset the clock for making required minimum distributions, using your own age, not your spouse’s.
If your spouse’s 401(k) plan allows it, you can leave the money in the plan, taking withdrawals if needed without an early withdrawal penalty, though you’ll still owe ordinary income taxes. If you’re 72 or older, you will need to take RMDs. Talk to your Fiduciary Advisor about whether it’s better to roll the funds into an IRA, where you can access more investment options and avoid paying 401(k) fees.
Your Advisor will also help you decide how to disclaim assets that would push you into a higher tax bracket.
2019 SECURE Act Updates
The 2019 SECURE Act has changed the game for nonspouse IRA beneficiaries. Previously, if children or grandchildren inherited an IRA or 401(k), they could potentially “stretch” their distributions and tax payments out over their single life expectancy (and delay tax payments for several decades). Now, the money must be distributed and taxes paid within 10 years.A decision to disclaim IRA assets must be made within 9 months of the original IRA owner’s death and before you take possession of the assets. This is an irrevocable decision — always consult with your Fiduciary team before making any major decisions.
6. Consult before claiming Social Security
There are several ways to navigate Social Security. The optimal claiming strategy varies from case to case, and there are so many stories of survivors being misinformed about their options or having their benefits calculated incorrectly. So before you select a Social Security claiming strategy, consult your Fiduciary Advisor to help you maximize your benefit amount.
For example, if you have minor children, you need to make an appointment at a local Social Security office as soon as possible to apply for survivor benefits for the kids because the benefit clock begins at the date of application, not the date of death.
If your spouse was already collecting benefits, the Social Security notification will trigger a one-time $255 death benefit. Visit the local Social Security office to stop the benefits they received and apply for new benefits for you — and don’t cash any more checks that come in, because you’ll have to repay everything in full.
If you haven’t yet notified the Social Security Administration that your spouse passed away, and you are still collecting their checks, don’t cash them — you’ll have to repay that amount in full.
You may also qualify for benefits as the caretaker of your spouse’s children under age 16. Otherwise, you can apply for Survivor Benefits.
When should I collect a Survivors Benefit?
You can apply for a Survivors Benefit if you are at least 60, or 50 if you are disabled.
If you collect a Survivors Benefit, but also qualify for a benefit of your own, you could potentially collect a Survivors Benefit in the early years of retirement and leave your own Social Security benefit to accrue delayed retirement credits. You could then switch to your own (higher) retirement benefit as late as age 70 — a good way to give yourself a raise in retirement.
Your Fiduciary Advisor will help you calculate the best Social Security claiming strategy.
7. Make a claim
If you own a term or permanent life insurance policy, now is the time to contact your agent and make a claim. If your husband was employed, check with the HR department at his employer to see if he had any life insurance there.
Your Financial Advisor will help you decide whether to roll it into a higher-interest savings account, or a money market account.
Remember the coverage limit is generally $250,000 per institution, so you may need more than one bank.
8. Beware of widow scams
Be suspicious of anyone who appears at your doorstep asking for repayment of debts owed. Always contact your Financial Advisor and financial institutions before inadvertently becoming the next victim of a scam artist.
We Can Help
The loss of a spouse is one of the most stressful events that anyone will ever go through. We’ll work with you to help gain clarity and stability, prioritize next steps, and help you plan a new and different future.
Call our San Ramon, CA office at (925) 314-8500 to book your free consultation, or fill out the form below. We look forward to speaking with you.