We see a very common fact pattern among retired couples, a potential pitfall that can lead to unintended consequences if not planned for appropriately. Often, a husband has been the primary breadwinner for a family and has been the dominant decision maker on most financial decisions of consequence. These financial decisions include hiring a wealth advisor and making investment decisions on behalf of himself and his family. It is an arrangement that can go unquestioned for decades. The problem is: what if a husband pre-deceases his wife? Will she be properly cared for with a well-conceived plan?
There is some pretty serious news to consider: If you are a married male, there is a much better than average chance that your wife is going to outlive you. According to the latest actuarial data from the Social Security Administration, the average American female is expected to live to 81, while the average American male is expected to live until 76. Further, according to the TIAA CREF, 2/3 of U.S. women live longer than their spouses and by an average of 10 years.
The facts are clear: a husband is quite likely to pre-decease his wife. Assuming a husband is the first spouse to die, is there a plan in place to ensure the financial wellbeing of the surviving spouse? Studying the research here again, the facts are worrisome. According to an Age Wave study, only 14% of widows were making independent financial decisions before their spouses died. Going further with the Age Wave study, fully 76% of married retirees said they wouldn’t be financially prepared if their spouse died.
The research suggests that retired couples have a long way to go on the financial planning front. Most husbands will die before their wives and most widows will feel unprepared to be the sole financial decision maker. The answer? You need a plan.
Engage with an Advisor
You may or may not feel the need to work with a wealth advisor on investing and retirement planning. Many investors and retirees have taken a “do-it-yourself” approach to investing that has worked for them over the years. It is a personal decision to hire an advisor and some choose to self-manage their investments.
Choosing to engage with a wealth advisor in retirement is not a choice that you are making for yourself, it is a choice that you are making for your spouse.
Create a Financial Plan
Most high net worth families do not have a financial plan in place. According to the Boston College Center for Retirement Research, fully 43% of “high income” households are at risk of not having adequate retirement income. The reason? Many families, even those considered “high net worth,” haven’t constructed even a basic financial plan to guide them. A husband who has yet to create a financial plan shouldn’t consider doing so for himself—he should consider doing so for his spouse.
The most urgent place to start is an analysis of what is prudent and reasonable to spend, based upon the capital base and income streams. A newly widowed spouse will be in charge of all spending decisions going forward and will need to understand what level of spending is sustainable for the long-term. The worst-case scenario here is that a person decides to spend way above their means—not because they are doing this consciously, but because they simply don’t know what they can spend based upon their asset base. Setting clear and reasonable spending goals up front is a critical step in preventing future disaster.
There are likely several income streams that will contribute to a widow’s financial picture. Social Security payments are the most common form of income, either from a widow’s own benefit or the benefit of their deceased spouse (depending which is higher). An annuity or corporate pension might also be a part of the equation. Coordinating these benefits in concert with retirement savings is also crucial for determining a clear picture of financial independence.
There may be a lump sum payment from life insurance after a spouse’s death. There are several options for maximizing the benefit of this pool of capital. Paying off debt or investing the money for the long-term are both important considerations. A common analysis is whether it makes sense to pay off the mortgage on a primary residence—with the benefit of a life insurance payment this is often the right step.
There will typically be complexities and nuances related to the estate plan of a deceased spouse. With high net worth families, often not all of the assets from an estate will flow directly to a spouse. Trusts are often established for the benefit of other heirs in the family, with differing consequences on how this wealth might impact a widow’s financial picture. It is important that a widow understand the impact of their spouse’s death and how it relates to the estate plan. A sit down with her attorneys and financial advisor is often the best way to
Putting It All Together
A good financial plan will consider the short-term and the long-term. A spouse’s death is one of the most traumatic times in a person’s life—there should be a clear and actionable plan in place that helps relieve the initial burden of parsing through complex documents. A 90 day plan for the days immediately following a death is the first important step for a widow. This plan should include a file with all the relevant planning documents: wills, insurance policies, trust documents, investment account statements and recent tax returns. The 90 day plan should consist of a brief memo, outlining the initial steps that the widow should take given. By way of example, the document might highlight a life insurance policy that is to be paid out, with thoughts on what that money should be used for.
After 90 days, a widow and her financial advisor should review their long-term financial plan. Retirement planning, budgeting, asset allocation and income analysis should all be part of a coordinate discussion to maximize a widow’s financial independence. With rigorous and prudent financial planning, what might be a source of stress and fear is often transformed into a source comfort and reassurance.
There is a better than average chance that a husband will pre-decease his wife. Because of this, a husband may wish to consider engaging with a financial advisor not for their own sake, but out of care for their wife.
 Boston College Center for Retirement Research. Retirement Income Study. December 2014. https://crr.bc.edu/briefs/nrri-update-shows-half-still-falling-short/