Preparing for the Financial Impact of Widowhood
Can anyone ever be prepared enough for the death of a spouse? Even if the answer is 'no', for most married couples, it is not a question of 'if', but 'when'.
In 2018, Merrill Lynch collaborated with Age Wave to conduct a US study called "Widowhood and Money: Resiliency, Responsibility and Empowerment", which looked at the financial impact widows face when their husbands die. In the study, they found that 78% of those who lose their spouse are women – which means that women are 3.5 times more likely to become widowed.
Why is this so? Well, it is an established fact that women generally live longer than men. Secondly, many women marry men who are older than them. Together, this gives women several years' headstart on the path to outliving their spouse.
The critical question is, how prepared are wives to take over all the family finances when their husbands die?
78% of widows and widowers describe the loss of their spouse as their single most difficult and overwhelming life experience. However, only a mere 14% of widows were already making financial decisions by themselves before their husband died. That's 86% of widows who were suddenly faced with the new responsibility of making financial decisions. It is thus not surprising that nearly 70% of widows said that “becoming the sole financial decision maker” was one of their major financial challenges.
Overall, the top 3 financial challenges facing widows were:
Adjusting to being the sole financial decision maker;
Adjusting to the sudden loss of income; and
Having to navigate all the paperwork associated with managing finances.
In addition, widows also worry over whether they are able to afford the cost of external caregiving they may one day require, especially if they had faced a prolonged and expensive period of caregiving for their late husbands. They see themselves as one day needing the same kind of care they provided to their husbands, but their husbands would no longer be around to care for them.
In addition, many widows are almost immediately faced with having to make critical financial decisions regarding the assets and investments that their husbands previously managed. If the children are still young, the responsibility of taking care of their financial future is suddenly thrust upon them, along with education and healthcare expenses.
Then there is the immediate burden of the mortgage servicing on their current homes. If repayments were previously serviced by both incomes, they would be able to make up only about half of the same amount on a single income. This leads to the burden of having to decide whether to move to a less expensive home or to rent, and talking to the banks on temporarily restructuring loan repayments.
This is one area where a proper insurance plan could have solved many problems. However, 53% of surviving spouses say they did not have any plan in place for what would happen if one of them died. The study found that those who did had such a plan fared much better in terms of stress and the process of grieving.
So, what should couples do to better prepare themselves for the financial impact when one of them becomes widowed? Here are some pointers:
1. Learn as much as you can about your family finances and investments
Where possible, both of you should attend meetings about family finances with your financial adviser. This will help you both be familiar with the main issues, make important decisions together, and know who your key advisers are. That way, you can know who to turn to for help if your spouse has passed.
Where practicable, insurance policies and investments should be placed with the same fiduciary financial adviser. This will allow your advisers to have an overview of the entire family finances and thus better help the surviving spouse when the time comes.
If your spouse handles most of the financial decisions and you don't know anything about finance, make the effort to learn at least the basics, so you don't risk becoming completely lost and overwhelmed if those responsibilities are suddenly handled to you.
2. Set aside time to talk with your spouse about money
Many married couples avoid having these discussions because money can be a touchy subject. However, one way to express love is by taking the time to discuss financial planning with our spouses when they are still alive. It is also a good idea to prepare a 'to-do list', with information such as:
If one of you dies while still employed, who can your spouse check with for any unpaid salary, accrued vacation days and employee benefits insurance plans?
Consider naming your adult children (if any) as your financial and health care powers of attorney, e.g. Living Power of Attorney or LPA
Contacts for your spouse’s life insurance company to file a claim
Contacts for banks to cancel credit cards, and include account numbers that will form part of your spouse's estate.
Financial worries were cut in half for widows who planned ahead. Just 36% of widows who were involved in financial planning before their husbands died said they worried they wouldn’t be able to support themselves immediately after the death of their spouse. In contrast, 64% of widows who hadn’t planned had that worry.
3. Don't immediately rush into hasty financial decisions
It is important to be able to take time off to experience grief. Gathering yourself, and regaining the necessary emotional strength and composure, is essential before you start dealing with financial matters.
Where possible, you should postpone making major, irreversible financial decisions in the first few weeks to months after your spouse has passed away.
Decisions like selling a house, paying off a mortgage or liquidating investments should be deferred until you are better able to deal with such matters. Where proceeds for insurance have been paid to you, beware of sales pitches to plow such money into annuities or other investments that tie up funds perhaps forever. You may not recognize that you may still be in a state of shock, and unable to make wise decisions. It is thus prudent to avoid jumping into a new product or investment until you have a proper grip on your financial situation.
Instead, that would be the time to start talking to your financial adviser. Do not be afraid to ask for help. Get them to provide an objective review of your overall financial picture before making any decisions. Like one widow did, you can ask your adviser to "take care of me like you would take care of your mother."
Bring along a trusted friend or family member to help you make the important decisions in such meetings with bankers or advisers. Ask for time to consider any recommendations to reposition or buy new assets or products. Seek trusted second opinions where necessary. Relying on the clear-headedness of others while you are grieving can be a big benefit to you.
It is always better to be prepared in advance. Make it a point to join your spouse at the next meeting with your financial adviser. Get to know him or her and ask questions about things you do not understand. There are no stupid questions. A good financial adviser will always appreciate that a spouse wants to be prepared and is making the effort to participate in decision making, so that the good relationship can continue should anything untoward happen.
While we cannot avoid the uncomfortable events in life, it is within our control to prepare ourselves as best as possible and reduce the impact of such painful episodes on our lives.
