Death of a spouse can be hard for anyone to manage emotionally, no matter the age or the timing. Unfortunately, many investors become 'suddenly single' everyday through the untimely death of a spouse even during tough economic times. While the surviving spouse understandably is dealing with the emotional effects, their finances could also be dealing with stressful circumstances of their own. Especially in this recession, advisors working with those who have recently lost a spouse need to be prepared to help the surviving spouse take the next steps in securing their finances.
Financial planning during these life transitions can have long term implications for the suddenly single survivor. It can be hard to make logical decisions without the professional, objective help of an advisor; advisors really owe it to their recently widowed clients to hold their client's hand through the decision-making process surrounding the financial aspects of losing a spouse.
Cash Is King: Assessing The Incomes Changes
After the investor has had time to grieve, they need to take a look at their cash flow in both the short and long term. Cash is king as it pays the bills and gets investors through their daily lives. Evaluating income sources and how income may change in the future should always be the first step.
When assessing income, shore up all the potential income sources that will be available. One in particular is social security-look to see if the surviving spouse qualifies for the deceased spouse's benefits. Another possible asset source can result from any property that can be sold (i.e. car, motor home, and vacation home).
This step also involves assessing their current budget. The surviving spouse must be prepared for significant changes to their budget due to the changes in income sources. A new budget, depending on how significant these income changes are, can severely alter the surviving spouse's lifestyle and, therefore, advisors must express a clear understanding of these changes and suggest appropriate altercations to the client's spending habits.
After the above is discussed, the next step is compiling their new financial plan, which helps them gauge their probability of success in regards to how their income and assets stack up against their goals. The main part of that goal is to maintain their current lifestyle as closely as possible. Another part of that goal, is preparing them for future expenses.
After assessing both current and future goals, in relation to their investment portfolio, it's time to weigh these goals against the likelihood of maintaining financial security and not running out of money before they run out of time.
Current Obligations: Assets vs. Liabilities
It is important to assess the surviving spouses' current obligations, liabilities and assets. The questions that need to be addressed are: