Proactive Financial Planning Can Reduce Stress for Surviving Spouses

Proactive Financial Planning Can Reduce Stress for Surviving Spouses

by A. Scott White, CFP®, ChFC, CLU

The death of a spouse is one of life’s most traumatic events. While working through the stages of grief, the last thing anyone wants to think about is money. But major financial issues and decisions arise and must be handled immediately — and in the long term. One way to provide comfort and help ease the stress associated with a loss is proper financial planning before the loss occurs.

Since either marriage partner could go first, both of you need to understand joint finances and create a plan to care for the survivor’s financial needs. As part of your financial planning process, you need to have in place basic legal documents, including a properly constructed will and living will, trust and beneficiary arrangements, a durable power of attorney, and a healthcare surrogate appointment.

It is important that both parties know where critical documents are kept and how to access them, as well as how to contact legal and tax professionals. With just a few phone calls, these professionals can start the probate process for the will, as well as begin transferring the assets per the estate plan and trust provisions.

In addition to having the basic legal documents, you’ll need to plan to avoid three critical potential problems every surviving spouse faces. Those are: running out of money, incapacity, and squandering the nest egg.

Avoid Running out of Money

If you already work with a CERTIFIED FINANCIAL PLANNER™ professional, you understand there are calculations used to determine the yearly income you want during retirement. But that is only part of the equation. Social Security is a variable that has multiple outcomes for a surviving spouse based on which spouse passes first, who was the higher earner and the age of the surviving spouse. Sometimes, deferring your own Social Security benefits to take a smaller survivor benefit will garner a larger amount down the road.

But this is only one area of potential questions that arise in the proactive planning process. Other questions often include:

  • Is the surviving spouse prepared to make investment decisions?
  • Will the spouse be comfortable deciding where to invest to maintain income?
  • Will he or she know what investments are suitable with the current stock market ups and downs?

By starting all proactive financial planning with an Investment Policy Statement (IPS), critical questions will be determined prior to the loss of a spouse.  An IPS is a clear, written document articulating the investment objectives and policies applicable to you, the investor, and your investment portfolio.  It spells out appropriate types of investments for the surviving spouse and exists as a guide to remind you not to make unplanned and impulsive revisions of a sound long-term policy.

Plan for Incapacity

The most common reason people think of for incapacity planning is dementia or Alzheimer’s disease. However, often people overlook that recovering from surgery, a broken bone, or rehabilitating after a hospital stay is more common that mental incapacity planning. In any of these cases – whether long term or short-term incapacity—you need a plan that determines who will take care of the things that now will not get done a daily basis. And the need for this planning is heightened when you are a surviving spouse who now has no spouse to rely on.

A vital part of the incapacity planning process is to determine what you will do in the case of your own incapacity. You will want to evaluate the differences between self-insurance and long-term care insurance, or if Medicaid planning is an option.

After you’ve developed a plan for how to pay for long term care, you’ll want to consider who could be a caregiver. Many think of family first; however, you should consider the high stress and fatigue rates that come along with caretaker roles.

Guard the Family Investment Nest Egg

Contrary to what you may have heard, the most common predators who can deplete the family nest egg are not the gold digger the surviving spouse remarries or the con artist who convinces the surviving spouse to invest the nest egg in a hoax investment. More often, the culprit is someone much more familiar. Our children change after the loss of a parent. It is not uncommon for a child to ask for a helping hand from a surviving spouse when they would never ask the same question when both parents are alive. Beware of any request that starts something like, “Now, you know I would never ask you for money for myself, but your grandchild needs…” Be sure to consider all the unintended consequences that result from being the family piggy bank. In addition to developing a plan to address your children’s request for money, review your liability insurance to make sure you are protected. You have worked hard for your money; make sure you put yourself first so that your money lasts longer than you do.

Losing a spouse is difficult enough. Make it a little less stressful by planning for your financial needs ahead of time.