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:
Where do they stand on current obligations such as credit card bills, mortgages, car loans?.
What are the balances on each of these obligations? Can they continue to pay for them?
What types of assets are held by the client?
What type of, if any, life insurance proceeds are available from the death?
The idea is that investors need to know what their liabilities are, what assets are still remaining and what has come into play as a result of the death.
Can I Stay Financially Secure?
Once investors have a grasp on their income and expenses and they understand what the assets and liabilities look like, advisors can start to plug into addressing some of the goals of the surviving spouse.
These goals can vary from assuring that money will be available through the entire retirement, gifting to family members, to arranging for educations costs of grandchildren. An advisor must run a financial plan that will then help his investor gauge whether they are under funded or adequately funded to maintain their financial security and independence and reach their goals.
What To Do Before An Untimely Event
Advising clients to be prepared before becoming 'suddenly single' is one of the most important pieces of advice an advisor can give. Ensuring them that not only will this help their finances, but emotional state of mind, will be one less surprise they will need to deal with as their lives are faced with significant and sad adjustments. Preparing for an untimely death with life and long term care insurance, wills, naming of beneficiaries, etc. will make any necessary financial changes easier.
Finding Support
For the surviving spouse, nothing is more reassuring than having an understanding and experienced advisor handing the mundane details in a difficult situation. Having a constant dialogue with clients, both before and after an unfortunate situation, improves the emotional process of severe life style changes, future uncertainty and puts investors on a clear path toward financial security and continued independence.
Russell Fox, CFP, CLU and ChFC, is managing director at Apex Wealth Management Group, a division of United Capital Financial Advisors, Inc., located in Oxnard, Calif. For nearly three decades, Mr. Fox has been advising retirees to continuously monitor and reevaluate their decisions regarding financial, tax, health and estate issues. For more information, please visit www.apex500.com.