Prepare yourself financially for a spouse’s death
53 percent of widows had no plan, study reveals
Of all the risks that couples face in retirement, the death of a spouse is a certainty.
But they don’t seem to be planning it, according to a Merrill Lynch and Age Wave study on widowhood. Consider:
❚ More than half (53 percent) of widows say they and their spouse did not have a plan for what would happen if one of them died.
❚ Seventy-six percent of married retirees say they would not be financially prepared for retirement if their spouse died.
❚ Following the death of a spouse, half of widows experience a household income decline of 50 percent or more.
So what should couples do to better prepare for the loss of a spouse?
Plan for the obvious
There are 20 million widows currently in the U.S. and 1.4 million new widows annually, according to the Merrill Lynch/Age Wave study.
Despite that, most married couples don’t like discussing or planning for death, says James Watkins III, a managing member of InvestSense.
But it’s best to tackle this tough subject head-on given the potentially dire consequences.
Get help
If you need help, consider talking to a qualified, trusted and competent advis- er such as a certified financial planner.
“A new widow needs a comprehensive financial evaluation and plan,” says Steven Podnos, a certified financial planner with Wealth Care.
Watkins says professionals can help address what many couples overlook – the potential cash flow issues that emerge after the death of a spouse.
Cary Carbonaro, a certified financial planner with United Capital Financial Advisers, recommends working with a certified financial planner long before becoming a widow or widower.
After the loss of a spouse, the remaining partner “might make mistakes that will be difficult to recover from,” she says.
Hire other professionals, too
Consider working with an estate planning attorney and an elder law attorney.
According to Watkins, an experienced and knowledgeable elder law attorney can perform a detailed inventory of the available financial resources and “help integrate Social Security, Medicare, Medicaid and other programs to maximize the benefit received,” he says.
“A good estate planning attorney can then determine if any asset protection/ wealth preservation strategies are needed, in order to qualify for and preserve government benefits,” Watkins says. “For instance, due to the stringent requirements to qualify for Medicaid, estate attorneys will often draft an income-only trust to make sure an individual qualifies for Medicaid.”
Do you have enough insurance?
Forget for the moment whether you should buy term or cash-value life insurance. The question you should be asking, Watkins says, is do you have enough life insurance?
It’s “important to get the needed amount of insurance in case of an unexpected/premature death,” he says.
A financial professional can quantify how much to purchase using any number of methods – human life, financial needs and capital retention.
Don’t fret about estate taxes
With the current federal estate tax exemption at $5.6 million per person, most people do not have to worry about the tax implications of death, Watkins says.
But do worry about your retirement accounts and the beneficiaries of those accounts.
“Inherited retirement plans are often the largest asset in someone’s estate,” Watkins says.
The beneficiaries need to do a “forensic analysis” of the inherited plan’s portfolio to determine if the funds are legally prudent and appropriate given the changed circumstances.
“At this point, the widow needs planning, not product,” he says. “This is another area where estate attorneys and elder law attorneys can maintain the focus on planning and help protect widows financially.”
Bottom line
The key to planning properly for the death of a spouse, Watkins says, is to determine exactly what the available financial resources are and calculate financial needs.
Then plan on the best way to maximize those resources while getting additional ones through government benefit programs.