Widows Struggle with Retirement Plans: Here’s How Advisors Can Help

It is the most difficult and overwhelming experience for a couple and more than half of them have not planned for it.

That experience is having a spouse die, and although 78 percent of widows and widowers say it was the most difficult and overwhelming experience of their lives, only 47 percent of widowed couples had plan for that possibility, according to a Merrill Lynch and Age Wave survey.

How significant is the problem? Considering there are 20 million widows and widowers in the U.S. today, and 1.4 million new ones annually, it’s a big deal.

This from the study:

• Only 14 percent of widows say they were making financial decisions by themselves before their spouse died. Now, 86 percent report having to do so alone.
• 60 percent of recent widows report feeling burdened by immediate expenses, including debt (35 percent), funeral expenses (34 percent) and mortgage/rent (33 percent).
• 72 percent of widows say being able to afford the lifestyle they want is a top priority, followed by paying day-to-day expenses (68 percent).
• Half of widows experience a household income decline of 50 percent or more and 67 percent report adjusting to loss in income as their top financial concern.

Financial advisors need to focus on the following issues that can frustrate survivors, especially in the immediate aftermath of a spouse’s passing:

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• Knowing how to access a spouse’s accounts (74 percent) and having both names on all accounts and deeds (65 percent) is a big deal to survivors.
• Similarly, locating important documents (64 percent) and continuing to pay bills on time (60 percent) is a big priority.
• Over the longer-term, getting all accounts in the survivor’s name (48 percent), updating beneficiaries/estate plans (45 percent), and reassessing one’s retirement strategy (33 percent) are important issues that survivors and their financial advisors to confront.
• Financial professionals should practice a “temporary financial-free zone” where there is no pressure on widows to make key financial decisions quickly.

Advisors Stepping Up On Survivorship Issues

No question, advisors deem survivorship issues as a big deal.

“As a part of my financial planning I always include a survival scenario,” said Damien Caillault, a money manager with Stifel in New York City. “The overall idea is to estimate what the cost of living would be for the surviving spouse and how he or she won’t end up in a dire situation.”

Caillault lists the following financial issues as a high priority in the event of a spouse’s passing:

Social security: Once the spouse passes away, the surviving spouse can benefit from the full Social Security benefit as opposed the spouse benefit.

Medicare: The cost of part B and part D depends on MAGI (Modified Adjusted Gross Income) for two years prior. “The fact that the surviving spouse will move from married to single for tax purposes will affect it in a negative way while the loss of income (if the deceased was working) will help on this matter,” Caillault said.

Investments: Are the assets invested in a way to produce as much income as possible?
Employment funds: Will the surviving spouse benefit from the deceased’s pension?

Insurance: Life insurance needs to be in place to bridge the gap.

Long-Term Care: LTC financing needs to be addressed. “We have seen instances where all the couple’s savings were used up for the care of the first spouse to pass, leaving the survivor forced to rely on family or on welfare,” he noted. “LTC insurance policies can be expensive, and can be seen as a waste if not used. Hybrid LTC-Life insurance policies can help.”

Getting Ahead Of The Issue Is Key

Don’t wait for a client spouse to pass before getting involved in a “widow scenario” discussion, other financial experts said.

“The first thing I do when meeting with clients about retirement is to involve both spouses in the conversation,” said Clifford Caplan, a financial planner with Neponset Valley Financial Partners, in Norwood, Mass.

One of the most significant topics Caplan sees is the amount of income the couple can expect to receive without out-living their income.

“I also have an-depth discussion about when to trigger the payment of Social Security benefits,” he said. “In particular, where there is a huge disparity in the amount of Social Security that each spouse can expect to receive, I discuss the advantages of waiting until age 70 for the higher earning spouse and, more importantly, the benefits to the surviving spouse should the higher wage earner pass away.”

In addition, having a conversation about the importance of eliminating as much as debt as possible in retirement including paying off the mortgage is vital. “The amount of debt that many retirees retain is alarming and can often destroy the best of retirement income strategies if it is burdensome,” Caplan said.

Much of the angst and decision-making should be resolved while both spouses are living, Caplan added.

“If the husband dies before these issues are discussed, these same conversations about expected retirement income will be had,” Caplan said. “But these conversations and decisions should take place when both spouses are alive and not wait until the breadwinner dies. It’s often too late to make any significant improvements to a retirement income strategy after a spouse has passed.”

Brian O’Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC’s Guide to Creating Wealth. He’s a regular contributor to major media business platforms. Brian may be contacted at brian.oconnell@innfeedback.com

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