Financial Challenges Facing a Bereaved Spouse/Partner

by Jim Schwartz, CFP
Strategic Wealth Advisors

Becky lost her husband to a motorcycle accident at a young age. Her oldest child, Steve, was a real estate agent who made a very good living during the recent real estate bubble. He convinced his mom to buy an expensive rental property with the idea that the property value will only go up. It didn’t.  Becky ended up losing over $100,000 that she really didn’t have to lose.

Later, after the real estate bubble popped, Steve tried to convince his mom to take out a $250,000 mortgage on her paid-off home so that he could buy a “can’t fail” business. By that time, Becky hired me as her new financial advisor. My analysis showed her there was no way she could afford to loan her son that amount of money, especially if something went wrong with the loan. Her son kept pushing her and she finally “loaned” him $40,000 expecting monthly repayments. Becky received a total of one repayment. The business has since failed and is now worthless.

Working with clients going through the loss of a spouse or partner, I have identified ten common financial challenges that can be avoided with proper planning and advice. Three of these challenges (and solutions) are contained in this article with future articles covering the remaining challenges.

An eBook I authored contains all ten financial challenges and is available for free download at either Strategic Wealth Advisors or Widowed Community Education Support Services, Inc.

The challenge from the first story is listening to investment tips or advice from a family member or friend who is not a professional advisor. Although family and friends may have good intentions and in some cases think they have “can’t fail” opportunities, it normally doesn’t work out that way. One solution is to find a trusted, competent financial advisor (locating such an advisor will be covered in a separate article) who can not only educate you on investments but also act as a buffer between you and the family members or friends trying to convince you to give them or loan them money.

Joyce sold her home on the East Coast and wondered what to do with the $80,000 in proceeds. Her real estate agent put her in touch with George, an annuity salesperson who was offering 10% bonuses on certain purchases. Joyce thought a 10% bonus was terrific and purchased the annuity. George and his company promptly earned a $12,000 commission on an annuity sale which took all of two hours. Several years later, Joyce moved to Arizona and, in declining health with rising health care expenses, came to me for financial advice. It turns out that if she took more than 10% of her annuity value out in any one year, she would pay up to a 15% surrender charge just to access her own money! Because of the high commissions collected by George and his company and the 10% bonus paid to Joyce, this particular annuity required 22 years before the surrender charges reached zero percent! This is not a good deal in my mind.

Joyce did go to a “professional” but this “financial advisor” was really just a product salesperson and not an advisor at all. He failed to provide any financial planning, cash flow analysis, tax impact studies, or estate planning to Joyce. It was all about the sale and collecting a large commission. The solution is to know the five critical questions to ask of a potential advisor, especially for a widow or widower. These questions will be covered in detail in a future article but if you would like them now, please contact me at Jim@Xpertadvice.com and I will email you the list of questions.

Melinda lost her husband two years ago. Both were in their late forties with three teenage children and they were living paycheck to paycheck with little savings. With life insurance payments, Melinda suddenly found herself with more than $600,000 in the bank.

She decided to remodel the home for which $75,000 was initially budgeted. Within two years of receiving the life insurance money, Melinda had spent nearly $200,000 on the home remodel, which still was not finished, and half of the $600,000 was gone. At her current rate of spending, she will be penniless in another two years.

How does this happen? In Melinda’s case, she was never used to having money and she was grieving the loss of her husband. With all that cash just a computer click away, she thought there would always be plenty. Not only is her husband gone, but the life insurance money that was supposed to replace a good portion of his earning potential is gone as well.

The best thing Melinda could have done was to pretend that money didn’t exist for the time being and start working on a budget or spending plan with her financial advisor. Having a plan in place can help guide us during uncertain times. A spending plan needs to be monitored and updated just like any plan.

If spending can’t be avoided, the advisor should calculate how much can be spent without jeopardizing other priority goals like retirement and education funding. Once this predetermined amount is spent, there is no more to spend outside of the spending plan.

Melinda is back to work and may need to work full-time for a good portion of her life to cover living expenses as well as fund her children’s college education.

Through proper planning the value of this $600,000 could have been worth millions of dollars over Melinda’s lifetime. Now she may never get the chance to experience the security that comes with having a sufficiently large retirement nest egg.

The solution, which was already mentioned, is to prepare a spending plan. Once prepared, stick to it, and monitor and update it periodically. Almost everyone knows how much money is coming in month by month, but few know where they are spending it. Preparing a spending plan can be eye-opening and very educational!

The challenges faced in this article are the most common. It appears that no matter where you turn, people are always taking advantage of the widow. However, armed with the right tools and advice, one can maneuver through these financial, legal, and tax landmines. In the next article, we will discuss additional challenges for the widowed individual including time sensitive financial and legal issues.

About the Author: Jim Schwartz is a Certified Financial Planner (CFP) practitioner and financial advisor who realized that nearly half his clients were widowed and few had spoken of attending grief support groups or working with professional bereavement counselors. When trying to find local resources for his clients who recently lost a spouse or partner, Jim realized there might be a need for local peer-to-peer grief support groups and a multi-day conference.

Widowed Community Education & Support Services, Inc. (WCESS), founded by Jim Schwartz, is a nonprofit organization incorporated in Arizona. In late 2010, Jim started the first widowed-to-widowed grief support group in Tempe, Arizona. A second group was started this year in Scottsdale with plans to start additional peer-to-peer grief support groups throughout the Phoenix metro area. These support groups are organized through Meetup. If you are in the Phoenix area you can find Jim’s groups on Meetup by searching for “widowed”. You may contact Jim for additional information about his support groups through his email.