How To Minimize Financial Frustration of Surviving Spouses

“Death is inevitable, so why not plan for it?” says our columnist on the eve of International Widows' Day.  

By Beau Henderson
Beau Henderson
Beau Henderson

June 23 marks International Widows’ Day, a day dedicated to honoring a group that can often be forgotten after the death of their spouse. While losing a spouse can be traumatic enough, the financial frustration that can come along with their passing only adds to the pain of the surviving spouse.

Understandably, most spouses would prefer not to leave their loved ones in a poor financial situation after their passing, so settling estate and financial-related matters as a couple is ideal. But for advisors whose clients suddenly and unfortunately find themselves in such a situation, below are the most critical areas to address.

Working With Widows, Specifically

A recent study found that 80% of widows switch financial advisors within a year of their husband’s death. While there has been some debate within the industry around that figure, it stands to reason that the better an advisor can work with married couples, the better their chances of keeping the surviving spouse onboard.

It is relatively well known that women live longer than men, on average, for a myriad of reasons. According to Harvard Medical School’s Harvard Health Publishing, 57% of people 65 and older are women, and by age 85 the number rises to 67%. With the average lifespan being about five years longer for women than men in the U.S., your chances of working with a widow are much greater than a widower. So how can you improve how you work with widows, specifically?

Often, women tend to think more about long-term issues like healthcare expenses in retirement, but unfortunately, there can be a disconnect between their justified concerns and their involvement in the planning process. The most obvious solution is to get women more involved earlier.

Too often, male advisors can make assumptions about women and money that can serve as a detriment to building a successful relationship, like assuming the man is the sole decision-maker or that the woman is less knowledgeable about investing. These archaic stereotypes can not only make a female client feel undervalued, it can also make her feel like she’s not heard as “part of the team” and when the time comes, she may choose to look for services elsewhere.

Instead, advisors should encourage both partners in a marriage to play an active role in managing their financial plan. Regardless of which spouse takes the lead in managing the family’s finances, it is crucial as an advisor that you create an environment that welcomes both parties to the table.

Keeping both of them informed about the details of their financial plan — and most importantly, informing them what the game plan is in the event that one spouse dies — will only increase the likelihood that the surviving spouse will stick with you for the long haul.

Cash Flow and Taxes

People who have recently lost a spouse are understandably vulnerable and scared and can be worried about being taken advantage of.

Let’s look specifically at how the passing of one retired spouse can affect the other. Typically, household income drops by about a third when one of the Social Security recipients dies (assuming they were receiving it at the time of death). Cash flow issues can also quickly become a concern in if the decedent’s pension payouts are reduced for the surviving spouse or go away completely.

By proactively considering strategic income planning options, you can help your clients better prepare for the loss of a spouse. Here are a few examples:

  • When working with a married couple where only one spouse is employed, one option is a spousal IRA. Under the current spousal IRA rules, a couple where only one spouse works can contribute up to $12,000 per year, $13,000 if one spouse is 50 or older, or $14,000 if both are 50 or older. This can go a long way in helping alleviate cash flow concerns for the surviving spouse.
  • If your client retires before age 72, one option is to withdraw money from a traditional IRA when income is lower. This can reduce future required minimum distributions (RMDs) and help your client avoid a potentially higher tax bracket later in life.

One other important planning point is proactive tax planning for the surviving spouse. Keep in mind that a lower income does not necessarily mean lower tax bills. Surviving spouses go from the most favorable tax category (married filing jointly) to the least favorable (filing single). The combination of the standard deduction cut in half, less income and the surviving spouse paying a higher percentage on the income that’s left can spell financial disaster if tax considerations are overlooked.

Contingency Planning is a Must

Too often, clients approach their retirement plans with a “set it and forget it” mindset. We’ve all heard the typical excuses: “We have plenty of time,” “We don’t know what to do,” and “We haven’t even thought about it.” As your client’s trusted advisor, it’s your job to ensure they have a contingency or backup plan to prepare for situations before they arise.

So here is my call to action to my fellow advisors: Over the next 30 to 90 days, make it a point to schedule a contingency planning meeting with each of your married clients. Discuss different scenarios and possible options with them.  Once decisions are made and a contingency plan is created, ensure both parties are on the same page and confident in their financial future.

Addressing Survivor Benefits

Of course, everyone’s situation is unique, but below are a few common questions I’ve received from some of my recently widowed clients.

Does my spouse’s earning history affect my Social Security benefits?

 The answer to this question, like so many others, is “it depends.” For one, benefits will be dependent on birth year and the amount of the benefit being received by both spouses. If one spouse’s benefits are more than twice the surviving spouse, the survivor could be entitled to half that amount, or if one spouse has a higher benefit, there are options to transition their benefit to the survivor.

Can I claim a survivor benefit on a deceased ex-spouse?

Again, it’s possible. For survivor benefits, someone can make a claim on a deceased spouse as long as they have not remarried before age 60. The same rule applies for an ex-spouse who passes; if you’ve never remarried or remarry after 60, you are entitled to the benefits.

Does my full retirement age change since I’m receiving Social Security survivor benefits?

No, your full retirement age is still based on the year you’re born. If you are receiving survivor benefits (where your spouse passed away as early as 60) then your survivor benefit doesn’t change. But it might make sense to switch from survivor benefit to your own full retirement age, which could be a higher sum. If you’re able to fill income gaps with your survivor benefits, then you could also wait as late as age 70 and your payouts will be even higher.

Few people want to think about the death of a spouse or even their own mortality, but ignoring the reality and avoiding the financial discussion around it solves nothing. It’s our responsibility to guide these conversations thoughtfully and respectfully, both before and after a client’s passing.

Beau Henderson is the founder of RichLife Advisors LLC, a wealth and retirement planning firm that provides pre-retirees and retirees with holistic wealth management services. His firm provides investment advisory services through Fiduciary Capital, Inc. Beau is a licensed insurance professional in Georgia and holds RICP, CLTC and Certified Financial Fiduciary designations.



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