You and your spouse have done everything right financially. Except you didn’t consider the impact when one of you dies first.

Preparing for the financial aftermath of a spouse’s death is crucial. Even with diligent retirement planning, the financial landscape can drastically change when one partner passes away. Here’s how you can prepare for such an eventuality.

Understanding the Financial Impact

Losing a spouse can severely affect the surviving partner’s financial situation. Social Security benefits will be reduced as the smaller of the two checks disappears. If a pension without survivorship rights exists, that income stream will also cease.

Despite the drop in income, the surviving spouse may face higher taxes due to filing as a single person. Higher tax brackets apply at lower income levels for singles, compounding the financial strain.

When the plan is disrupted by the tragic death of a spouse, there isn’t much you can do besides cut expenses or return to work.

Proactive Financial Steps

There are several steps you can take to mitigate financial hardships after a spouse’s death:

1. Maximize Social Security Benefits: Delay Social Security for one spouse to increase the survivor’s benefits.
2. Roth Conversions: Convert tax-deferred accounts to Roth IRAs to reduce required minimum distributions (RMDs) and avoid higher tax brackets for the survivor.
3. Survivorship Benefits: Opt for pension plans with survivorship benefits, even if it means a lower payout initially.

Longevity Considerations

Women generally outlive men by two to three years, but the gap can be much more significant for couples. Economists’ research found that 62% of wives will outlive their husbands by 12 to 14 years on average, while 38% of husbands who outlive their wives do so by nine to 11 years. Planning based on projected life expectancy can lead to financial shortfalls.

Managing Wealth and Taxes

Some surviving spouses face the opposite problem: too much money. We recently helped a 64-year-old widow with a $4 million tax-deferred account avoid high tax brackets by doing laddered annual Roth conversions for the next six years, then shifting to qualified charitable distributions.

Timing and Tax Strategies

Grief can make it feel like time is standing still, but we can’t overstate the importance of timing in financial maneuvers. For instance, surviving spouses can use their partner’s capital losses to offset gains, but this must be done within the same calendar year of the spouse’s death.

Long-Term Financial Implications

The financial impact of a spouse’s death can extend for years. Medicare premiums, based on modified income from two years prior, can increase significantly for singles. For example, in 2024, a couple can have up to $196,000 in income and still pay the minimum premium, but for singles, the threshold is $98,000.

Conclusion

Preparing for the financial impact of the death of a spouse is difficult, but essential. At Tru West Financial, we go beyond standard planning to create a tailored approach that protects your financial future in times of transition. Our advisors help you address single-taxation burdens, optimize Social Security, and set up strategies like Roth conversions and pension adjustments to keep you secure.

Let us help you build a resilient plan that honors your legacy—contact Tru West Financial today.

The post How to Prepare Financially for the Death of a Spouse appeared first on Tru West Financial.

Immediate Steps After a Spouse’s Death

1. Follow any organ or body donation instructions provided by your spouse: Respecting your spouse’s final wishes is a priority. Ensure that any instructions regarding organ or body donation are carried out promptly.
2. Select/contact a funeral home: Meet with the funeral director to discuss costs, special arrangements regarding burial or cremation, ceremonies, and the next steps. You will likely need 10 or more death certificates to claim survivor benefits, insurance, and close accounts.
3. Notify immediate family, important friends, and your partner’s former employer: Initially, keep the contact list short and allow those around you to help spread the word and support during this challenging period.
4. Prepare an obituary and distribute It: Share the obituary with local newspapers and social media as deemed appropriate to inform the wider community.
5. Set up a system to track inbound connections: Acknowledge the support from friends and family by tracking connections and later sending thank-you cards or other means of appreciation.

For more detailed personal reflections and shared experiences, you can visit Option B which offers resources, inspiration, and community.

Taking Time to Grieve and Address Immediate Needs

In the weeks following the loss, it’s essential to take time for private grieving and seeking comfort from close friends and family. Avoid rushing into major decisions and begin to address some crucial administrative tasks.

6. Review/obtain your own health care coverage: Ensure your health care coverage is intact, especially if it was previously through your spouse’s employer. You may be eligible for COBRA benefits. Visit your doctor to ensure your health is managed during this stressful time, and seek additional counseling if needed.
7. Obtain and review important financial and legal documents: Collect and review documents such as bank and retirement accounts, insurance policies, wills, and trusts with your financial advisor or legal counsel. This can provide clarity and direction.
8. strong data-renderer-mark=”true”>File a Social Security Benefits Claim: Visit the local Social Security office or go online to file a claim. Request Publication No. 05-10084: Social Security Survivor Benefits. Both you and your children under 18 may be eligible for benefits.
9. Contact insurance companies: File and collect life insurance benefits and adjust policyholders on auto, homeowners, or other insurance policies.
10. Collect other survivor benefits: Ensure you collect all available benefits, such as veteran or pension, through your spouse’s former employer.

For help dealing with the unknown terrain of grief, visit David Kessler’s website, Grief.com.

Managing Financial and Legal Affairs

In the months following your spouse’s death, you can begin to address financial and legal tasks more thoroughly.

11. Close bank and credit card accounts: Close any accounts solely in your spouse’s name.
12. Remove your spouse’s name from joint accounts and assets: To avoid future complications, ensure that joint accounts and property reflect your name solely.
13. Roll over your spouse’s IRA(s) into your own: Consult with your financial advisor to properly roll over any IRAs, which can help manage your retirement planning.
14. Review and Reevaluate Investments: Work with your financial advisor to reassess your investment strategy and risk tolerance, ensuring it aligns with your new financial situation.
15. Follow up on estate settlement: Regularly check with your estate attorney and/or tax professional to ensure the estate settlement progresses as planned.
16. File an estate tax return: If required, file an estate tax return within nine months of your spouse’s death.
17. Update or create a new will and estate plan: It is essential to reflect your new circumstances in your will and estate plans to ensure your wishes are honored.

Navigating the complexities of widowhood is challenging, but with the proper support and resources, it is possible to find stability and direction. We are here to help with your support network during this difficult time.

The post Navigating Widowhood: 17 Essential Steps and Resources for Financial Stability appeared first on Tru West Financial.