When Elaine Williams became a widow four years ago at age 47, she took on extra data-entry work to help make up for the loss of her husband's income. She also learned how to make myriad financial decisions, including those related to their three sons, now ages 15, 22, and 23, without his input. "Suddenly, everything is on you," says Williams, who runs a lawn maintenance company in Jewett, N.Y.
Like Williams, widows and widowers often face financial challenges, including sharp drops in income and managing money on their own for the first time. Women are particularly vulnerable to money problems. More than 4 in 10 women 65 and over are widows. And because they have often earned less than their husbands, they may experience a larger income decrease in widowhood. But financial advisers say that smart advance planning can go a long way toward easing many of those hardships. Here are six ways to relieve the financial pressures of widowhood:
Replace lost income. Pension, Social Security, and salary losses can be offset with life insurance proceeds or other sources of money, says Sri Reddy, head of retirement income strategies for ing U.S. Wealth Management. He suggests taking out insurance worth between 10 and 20 times the income that needs to be replaced to make sure the insurance payout after the policyholder's death can generate enough income. A person earning $100,000 a year, for example, would need at least a $1 million policy, an amount that would be unlikely to fully replace the lost income. Of course, taking out insurance earlier in life tends to be cheaper; Reddy estimates that the average industrywide premium on a 20-year, $1 million term life policy on a healthy 30-year-old is around $500 a year.
Some pension plans allow employees to opt for lower payouts while they are living in exchange for higher survivor's benefits after death, which leaves more for the surviving spouse. Mary McGrath, executive vice president at Cozad Asset Management, a financial planning firm in Champaign, Ill., says even couples with other assets should consider selecting an option that allows benefit payments to the surviving spouse after death, because suddenly losing all income adds unnecessary stress to the grieving process. "It's too upsetting to the survivor to have all of the income cease when you die," she says.
Find your "trusted person." Catherine Collinson, president of the Transamerica Center for Retirement Studies, says that single seniors need someone who is able to make financial decisions for them in case they become unable to. She has served as her grandmother's "trusted person," as she calls it, ever since her grandfather passed away. Collinson's grandmother also added her granddaughter's name to all of her bank accounts to make it easier for Collinson to access and manage them in case of an emergency. As a result, five years ago, when her grandmother had a stroke at age 92, Collinson was able to easily step in to pay her grandmother's bills and manage her accounts.
But family members aren't always the best representatives, warns McGrath, because they have an inherent conflict of interest. "Children know that what doesn't get spent becomes theirs," she says. She recommends getting the input of a trustworthy outside financial adviser. Advisers and planners, which are interchangeable terms, although advisers are often associated more with investing, can be found through organizations such as the National Association of Personal Financial Advisors and the Financial Planning Association. Experts recommend meeting with several planners or advisers to ask them about their style, credentials, fee structure, and experience before picking one.
Manage risk. Studies show that women tend to invest more conservatively than men do, which means spouses tend to balance each other out, says Dave Hinnenkamp, president of kdv Wealth Management, a financial planning firm in St. Cloud, Minn. When women become widows, they tend to be overly cautious in their investments, which opens them up to inflation risk. If they are 100 percent invested in bonds, for example, they could outlive their savings. Widowers have the opposite problem and tend to invest too aggressively.
To reach a happy medium, Hinnenkamp encourages single women to consider how inflation can erode their future purchasing power and counsels men, especially seniors with a shorter time horizon, to play it safer. He adds that generally, holding between 50 and 70 percent in equities and 30 and 50 percent in bonds makes sense for retirees.
Delay big moves. When financial planner Mark Colgan's wife died suddenly at age 28, he realized that he wasn't the only one who could use help during such a stressful time. Within hours of her death, he had to make decisions about her funeral arrangements and burial, and in the months that followed, he found it difficult to open mail with her name on it, including credit card bills. As a result of that experience, he started a company to help people in his situation called Plan Your Legacy and wrote The Survivor Assistance Handbook: A Guide for Financial Transition.
Colgan says he often sees people rush through decisions, such as selling their homes or shifting investment holdings, shortly after the death of their spouse. "Grief is so painful, they want to get it over with," he says. While certain bills and funeral expenses need to be taken care of relatively quickly, selling a house or changing ownership on bank accounts can wait, he says.
Protect yourself. Michael Goshorn, who started the website widownet.org after his wife died in 1993, says that fraudsters sometimes prey on widows and widowers, whom they identify from newspaper obituaries. "You are especially vulnerable after you lose a spouse," says Goshorn, of Fort Collins, Colo.
The Better Business Bureau has received reports of fake insurance agents who tell widows and widowers that their deceased spouse's life insurance premium was delinquent and that they must pay thousands of dollars for the insurance funds to be released.
Keep a paper trail. Alexandra Armstrong, a financial planner in Washington and coauthor of On Your Own: A Widow's Passage to Emotional and Financial Well-Being, recommends keeping a file drawer for paperwork related to the estate of the deceased spouse as well as one dedicated to the surviving spouse's accounts. For some of her older clients who have trouble keeping track of all their paperwork, she recommends hiring a personal money manager, who gets paid by the hour to handle bills during a home visit. (A directory of people who provide such services can be found through the American Association of Daily Money Managers. Fees vary by region; in urban areas, they run about $65 per hour.)
McGrath says she has seen couples, especially older ones, use only the husband's name on bank accounts, bills, and loans, leaving the wife with no credit history. Putting both names on accounts while both husband and wife are alive can easily solve that problem, she adds.
Williams, who is also author of A Journey Well Taken: Life After Loss, says, "It almost sounds cold to be thinking of this stuff, but it's so important because later on it really saves the surviving spouse a lot of time and stress."