Your Financial Future
While most Americans face different financial challenges, one of the most significant is when a woman becomes a widow. The average age that this occurs is about 58-years of age. This age is calculated by the US Census Bureau. While many of the issues we will be discussing also apply to men, women face the issues more often because of the facts they often marry men a few years older and women have a longer life expectancy.
Upon the death of a spouse in addition to the emotional issues, there are serious financial implications. In most households one partner is the dominate financial decision maker. If it is that person that is deceased, it can create sufficient challenges, so this illustrates the importance of joint participation and good record keeping. These actions will make a transition a little easier.
While, there will be some choices that must be made quickly, when possible, it is wise to take time. Things that must be done early include making sure that legal document such as powers of attorney are updated and that all the necessary notifications are completed. Things that can be made in six months or a year might include whether or not to sell a home. Delaying these will help them be more logical and less emotional. This also allows time to get legal, tax and other professional advice. It is important to understand options. Often family and friends will offer options, but you must be careful to get professional help to minimize taxes and provide optimal results.
One early decision needs to be to consider a budget. Income almost always reduces upon the first death as one Social Security benefit will end and if the deceased has been receiving a pension, that also may go down. What does not go down is the cost of living in many cases. This is because so many expenses such as real estate taxes, property insurance, maintenance and utilities stay about the same. One thing that will go up is income taxes. This is because you get less free money from personal exemption and the tax brackets are almost half as wide.
There are many issues to consider such as survivor benefits that you may be entitled too. The most obvious is Social Security if your spouse was receiving a larger benefit than yourself. There may be other things such as pension benefits or VA benefits. Spouses are the only ones who can make a partner’s qualified accounts become theirs upon the first death. This could include reducing required minimum distributions if the younger spouse is the survivor. This usually happens if the survivor is over age 59 ½. If they are younger than this age, it may be smart to not make the conversion until they achieve this age. The reason is that there could be a 10% penalty removing these assets from your own account which you would not face if you received the same amount of money from your deceased spouses account.
Two additional areas that are very important to survivors are long term care and legacy planning. If you visit a nursing home, you will notice that the vast majority of patients are women. While no one wants to enter such a facility, it may become a necessity for people living alone. Medicare does not cover LTC, so you must prepare financially if you want options. There are new ways to possible cover these cost without paying monthly premiums.
Legacy planning involves making sure that you leave assets to your intended targets and not ones selected by the government. You also have to manage taxes, fees and privacy issues with your estate. Which assets you leave to certain beneficiaries can have significant tax issues. These are just a few of the issues you need professional help with and advanced preparation. Make this difficult time a little less stressful for your family.