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Preparing for Widowhood: Essential Steps for Financial Readiness

By Michael Nedreski

Thinking about the loss of a spouse is never a pleasant thought. It's natural to avoid picturing such a heart-wrenching event. However, the last thing you'd want to deal with in a time of grief is the added worry about the legal and financial complexities that come with the loss of a spouse. Given the gap in life expectancies between men and women, the possibility of widowhood is an unfortunate reality that needs proactive thought and consideration.

While being emotionally prepared for the loss of a life partner may be impossible, taking a moment to address certain questions could help alleviate financial stress if you ever find yourself grappling with the challenges of widowhood. 

Do You Have a Trust in Place?

If you and your spouse do not have a trust, consider drawing one up in order to control where your assets go now, and in the future. A trust ensures assets are protected and disbursed to the right heirs. You can have both a will and a trust, (1) but while a will takes effect after one's passing, a trust can be used both during life and after one's passing. Be sure to ask your advisor about state laws when it comes to the differences between wills and trusts. 

Without a trust, it can take longer to get closure, and the details about how assets should be passed on can get messy in the process. If you do have a trust, make sure it's up to date by working with a qualified estate attorney to get all the legalities in place. 

What Benefits Are Available to You? 

Understanding your benefits is another important aspect in preparing for the possibility of widowhood. Things like Social Security, life insurance, pensions, and annuities should be assessed ahead of time so that you're not struggling to make difficult financial decisions immediately after loss. 

If your spouse is still working, there may be other employer-sponsored benefits available as well. Work together with your loved one to make a list of all the benefits either of you will receive in the event of widowhood as well as the information needed to access these resources. As difficult as it may be, talking about these benefits ahead of time can help you both feel prepared if widowhood were to happen.  

Do You Have Access to All Financial Account Information?

One of the hardest parts of widowhood is moving forward without the support of your spouse. Maybe they were the one who handled all of the day-to-day financial matters and now you are stepping into this role for the first time in your life. It can be overwhelming to say the least. 

The best way to prepare for this possibility is to make sure both spouses have access to important financial account information including checking and savings accounts, retirement plans, and other investments. At a minimum, both spouses should have access to the account numbers and any log-in information. Also keep in mind that in some cases, settling an estate may require a birth certificate and/or marriage certificate (even if you are divorced), so it's important to keep these in a safe and accessible location.

Additionally, understanding how these accounts are titled (joint or individual), as well as who is listed as the beneficiary, are crucial aspects of estate planning. Having joint ownership on all accounts, or listing each other as beneficiaries, can help the assets transfer smoothly by avoiding probate. 

What Does Your Spending Plan Look Like? 

Life after widowhood will be challenging, but a detailed spending plan can help ease the transition by alleviating the stress of making day-to-day financial decisions. Start by creating a current budget, if you don't have one already. Together, you and your spouse can discuss the types of expenses that will either be added or removed from the budget if widowhood were to happen. It may seem strange in the moment, but it can be an incredible aid when planning for the future. 

Special attention should be paid to debts like mortgage payments, monthly utilities, car payments, credit card debt, and other loans. Understanding how these debts will be managed in the event of widowhood is crucial to creating a sound financial future for the surviving spouse. The last thing either spouse wants to do is leave behind debt that their loved ones can't manage. Planning ahead can help alleviate this burden and provide comfort to both spouses knowing that their partner is going to be okay on their own.  

Are You Aware of the "Widow's Penalty"?

One factor that can impact your financial future is what's called the "widow's penalty." (2) The term "widow's penalty" refers to the situation where a surviving spouse ends up paying higher taxes on a potentially reduced income following the death of their partner. There are a number of reasons for this scenario that can become a frustrating and expensive lesson for the surviving spouse.

The first reason for this occurrence is when you go from married filing jointly to filing single, you lose 50% of the standard deduction. This means that more of your income will be counted in your tax bill, so you'll have to pay more than you're used to, which can be a surprise to some.

Further, if you have not done any Roth conversions prior to this point, then the surviving spouse will have to take required minimum distributions from the combined IRAs/401(k)s. Even if the RMD amount is the same as before, the tax bill will still be higher because of the different filing status.

In addition to that, the different filing status can also affect IRMAA (Income-Related Monthly Adjustment Amount). IRMAA is a surcharge on Medicare Parts B and D. Simply put, if your Modified Adjusted Gross Income (MAGI) is above a certain threshold, you will have to pay extra on your premiums for Parts B and D, and that surcharge goes up as your income goes up. As a married couple, the threshold is $194,000, but if filing single, the threshold is only $97,000. As you can see, going from a married filing status to single filing status, but keeping the same income, will increase your chances of having to pay that Medicare surcharge.

Not only can there be added financial responsibilities and burden on the surviving spouse, there also might be the chance of paying a higher tax rate to boot.

Do You Have a Trusted Advisor?

Having a strong support system can carry you through widowhood and give you the strength to move forward. Part of that support system should be a trusted financial professional. 

Whether you're already working with a financial advisor, or you're looking to hire one, take your time getting to know them and make sure you like working together. 

If there is one spouse who tends to handle all financial matters, make it a point to introduce the other spouse to the financial team. Widowhood is a vulnerable time and it's vital that both spouses feel comfortable reaching out for help with important financial matters. If one or both spouses don't trust the advisor, it may be necessary to reevaluate the relationship. 

Your well-being is of the utmost importance during this process, so don't be afraid to interview several financial professionals before choosing the one you trust most. 

We're Here to Support

Working through the difficult transitions of life can be overwhelming, especially when it comes to preparing for the unexpected. At White Oak Wealth Partners, we understand the hardships involved in this process and believe that being proactive is always better than attempting to pick up the pieces alone after a loss. Our mission is to provide clarity and confidence to your financial journey, regardless of the life stage you find yourself in. 

If you and your spouse are contemplating the possibility of widowhood and working through these tough decisions, we're here to help. Taking the next step toward a stable financial foundation can be less daunting with guidance and support. Feel free to call us by calling 814-835-4551, emailing MICHAEL.NEDRESKI@LPL.COM, or scheduling an appointment here.

About Michael

Michael Nedreski is managing partner at White Oak Wealth Partners, a specialized financial lifestyle and wealth management firm serving entrepreneurs, business owners, executives, and their families. Mike has 30-plus years of experience in the financial services industry and is committed to serving his clients through holistic financial planning, disciplined investment strategies, and proactive personal service. Mike and his team are continuously looking for innovative and proactive ways in which to serve their clients, acting as their independent wealth coach and personal CFO. 

A native of Erie, Pennsylvania, Mike began his career in the financial services industry in 1988. He has earned the Chartered Retirement Planning CounselorSM (CRPC®) conferred by College for Financial Planning and Life Underwriting Training Council Fellow (LUTCF) designations. Mike is also an active member of the Financial Services Institute (FSI) and Financial Planning Association (FPA).

When not working, Mike enjoys spending time with his wife, Amy, and their children. He volunteers in his community and at his church and his children's schools. An outdoors enthusiast, Mike loves hunting, fishing, golfing, and spending time near or on the water. He also enjoys working out and watching some of his favorite sports teams, the Pittsburgh Pirates and the Cleveland Browns. To learn more about Michael, connect with him on LinkedIn.

*This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

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(1) Investopedia, 2023, November 1

(2) Forbes, 2021, September 20