It’s often the case that one spouse or partner handles most financial matters for the household. If that spouse or partner dies first, the survivor can be left with a hot mess. They’ll need to navigate their finances at a time when they’re vulnerable, grieving, and coping with living alone. To add to their stress, there can frequently be looming deadlines with penalties for late payments.
In general, it’s more common that wives outlive their husbands, making her the one who will be sorting out the finances. However, in all situations, there will be financial stresses on the survivor when the spouse or partner dies. To help alleviate these stresses, it makes sense for couples to plan for the inevitability that one of them will be living alone at some time in the future.
Let’s look at five red flag warnings for retired couples’ money management, along with tips for addressing each situation.
1. Not Understanding All Sources Of Retirement Income
Both spouses should know about all sources and amounts of their retirement income, including Social Security, pensions, systematic withdrawals from invested assets, and any income that’s being generated from working. You’ll also want to understand how retirement income will likely change when one spouse passes away. Usually a couple’s household income drops much more than living expenses do, often resulting in the “retired widow’s money crunch.”
Tip: Make sure both spouses are familiar with all sources of retirement income. Plan ahead to make sure the surviving spouse will have enough money to pay for their living expenses despite the drop in income.
2. Being Unfamiliar With The Budget For Living Expenses
It’s essential that both spouses understand how much they spend on living expenses, both regular monthly expenses and one-time expenses that are paid throughout the year. When you’ve prepared a realistic, thorough budget, you’ll know whether the lifetime retirement income the survivor can expect will be sufficient to cover the survivor’s living expenses.
Examples of regular monthly expenses include mortgage or rent, car payments, utilities, food, credit card payments, premiums for Medicare and supplemental insurance, and other insurance premiums, such as car insurance. Examples of one-time expenses include property taxes and homeowner’s insurance.
It’s also important to identify expenses that cover “must have” vs. “nice to have” purchases. When the household income drops after one spouse dies, hopefully the survivor’s retirement income will at least cover the must-have living expenses.
Tip: Both spouses should participate in preparing their budget, and they should understand how it will change when one spouse passes away.
3. Being Unaware Of Payment Details For Living Expenses
When one spouse passes away, the surviving spouse will need to know how their regular and one-time expenses are paid. Possibilities include:
- Sending a check via the mail,
- Triggering an online payment from a checking account, or
- Setting up automatic payments via a checking account, debit card, or credit card.
Essential details to know include the account name and number, user names, and current passwords.
Tip: Prepare an inventory of all accounts that require regular or one-time payments, including all pertinent payment details, and make sure both spouses know how to access this inventory.
4. Being Ignorant of Credit Cards Or Checking Accounts That Are Only In One Spouse’s Name
Most credit cards are generally issued to one person, who can then add their spouse or partner as an authorized user. When the credit card holder dies, the financial institution usually cancels the card within a few weeks of being notified of the death, even if the spouse or partner has a card with their name on it.
This situation can cause serious problems if any living expenses are paid automatically by credit card or if both spouses rely on the credit card for most of their purchases. The consequences are the same for checking accounts that have been issued only to one spouse or partner.
Tip: Make sure both spouses have at least one credit card for which they’re the primary card holder. Another possibility is to obtain a credit card or cards that are issued as a joint account and will continue after the death of one spouse or partner. Also make sure both spouses or partners are listed on at least one joint checking account that pays any of the household expenses.
5. Having No Relationship With Professional Advisors
When one spouse or partner doesn’t know about or commonly interact with any professional advisors the other spouse consults with, the survivor will be starting from scratch when they’re forced to take over the finances. Examples of professional advisors include financial planners, investment advisors, insurance agents, accountants, and estate attorneys.
Tip: Both spouses or partners should meet each professional advisor at least once and have their contact information. For interactions by email, copy both spouses or partners on all correspondence.
You can download a very helpful spreadsheet that will help you inventory all the information discussed here. It’s in the Downloads page of the Thinking Ahead Roadmap: A Guide to Keeping Your Money Safe as You Age.
It can be a lot of work to prepare financially for the eventual death of a spouse or partner, but it’s well worth your time to plan ahead for the survivor’s financial security. This will enable them to focus on all the other significant life changes that will take place at that time.