Yahoo Finance Retired and Recently Lost Your Spouse? 5 Money Mistakes You Must Avoid
When many people imagine their retirement years, they picture sitting side-by-side with a beloved spouse. They look forward to making more memories while they don’t have to worry about meeting deadlines or checking work emails.
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Unfortunately, sometimes these beautiful visions simply aren’t in the cards. Instead of planning vacations or searching for a dream house together, retirees may find themselves having to plan for a financial future without their spouse. Beyond the shock of their loss, these retirees must now make major decisions about their spouse’s estate and their own financial well-being.
To offer some insights about the mistakes retired widows and widowers should avoid when navigating the loss of a spouse, GOBankingRates talked to several experts.
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Don’t Rush Into Decisions
As you go through the process of setting up funerals and memorials, notifying family and going through your spouse’s belongings, it’s tempting to want to tackle everything at once to get it over with.
However, according to Chris Urban, CFP, RICP, founder of Discovery Wealth Planning, the wisest course of action could be slowing down and catching your breath. People who have been recently widowed should allow themselves to grieve and not to rush into any decisions that could impact their finances.
“It’s important to focus first on yourself and the grieving process, and then start to think about gathering information related to your financial life,” he said. “Take your time with the process and seek out trusted partners, [including] accountants, lawyers and financial advisors.”
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Don’t Forget Qualified Retirement Accounts
In the immediate crush of grief, many people may forget to think about the various retirement accounts that their spouse may have had. As Kelly Gilbert, owner and principal at EFG Financial explained it, not deciding how to inherit their spouse’s qualified retirement accounts, such as a 401(k), 403(b) or IRA, is one of the biggest mistakes widowed retirees can make.
She added there are three ways a spouse can inherit qualified assets: “First, if you are over the age of 59 and a half, then the best choice is to assume the account as yours,” she said. “This transfers the account to your name and Social Security number, and unless the deceased was already taking required minimum distributions, you’re not forced to take withdrawals until you’re ready.”
However, if you’re under the age of 59 and a half, and the money is in an employer-sponsored account, you should leave it there and use the fund as needed to eliminate the 10% early withdrawal penalties. If the money is in IRAs, Gilbert suggested potentially creating an inherited IRA account — though it’s not the most desirable option, because you must drain the account within 10 years, even if it enables you to access funds without taking on the 10% early withdrawal penalty.
Don’t Forget To Create a New Budget
Losing a spouse up-ends almost everything in your word, and your budget is no exception. That’s why Jeff Mandel, CEO of Credit & Debt, suggested creating a manageable budget within the first 30 days.
He cited a 2020 study for the Federal Reserve Bank of Chicago that found income for surviving spouses dropped an average of 37% in the first three years after being widowed, compared to the prior three years.
“You are most likely going to have to figure out how to get by without your spouse’s paycheck,” he said. “Or, if you were both receiving Social Security, [learn] how to live on a smaller benefit.”
Mandel encouraged recently widowed retirees to review all sources of income compared to their expenses. From there, they can assess how much cash flow they require to live and make any changes necessary to preserve their assets.
“More than ever during this period, it’s important to evaluate all areas in which you spend money and make the requisite adjustments to ensure you have sustainable income and assets for the remainder of your life,” he said. “It’s more important than ever to ask yourself, ‘what do I need?’ vs. ‘what do I want?’ to ensure that you have enough money.”
Don’t Open the Door to Scammers
It’s hard to believe that people can be this cruel, but there are scammers who target older people or people in bereavement. While many people are aware that the Nigerian prince who says he needs their help isn’t exactly who he claims to be, Mandel advised widowed retirees to be aware that scams aren’t just perpetrated by online baddies.
“Scams can come in the form of people you thought were close to you, family members, neighbors, co-workers, online and telephone solicitations, and can often be veiled under charitable and religious pretenses,” he said. “It’s neither your responsibility to become the bank for everyone else in your life nor to give money to every charitable organization that reaches out to you.”
Mandel counseled widowed retirees to resist pressure from other people, even people they assumed they could trust, while their emotions are fragile.
Don’t Avoid the Hard Questions
Though it’s tempting to put your head down and try to plow ahead with forced normalcy, the loss of a spouse does prompt hard questions about what the rest of your life could look like.
“You spent the last twenty, thirty or forty years or more planning your life together, and now that is no longer the case,” said Amy Colton, MBA, CDFA, founder at Your Divorce Made Simple.
Colton maintained that tax and financial planning is essential for helping you answer the questions that will determine how you move on.
Sometimes, that means asking yourself what you want to do with the home you shared with your spouse. Your marital home is one of the largest assets you have, so you’ll need to decide whether you want to stay in it or sell it. Beyond the choice to leave a place of so many memories, selling comes with its own financial and tax ramifications.
“Questions come to mind, such as ‘what are my new expenses going to be like for my new life?’ and ‘how much income will I now have coming in?'” she said. “It is imperative to create a budget that supports your new life. The mortgage or rent and healthcare expenses are some of the biggest line items in your budget. Everything that money touches needs to be re-evaluated and understood.”
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This article originally appeared on GOBankingRates.com: Retired and Recently Lost Your Spouse? 5 Money Mistakes You Must Avoid
