In the wake of a spouse's death, it may seem too soon to think about how to manage your money from here on out. And you would be right.
But at some point, it's one of those topics you need to examine carefully. If this was the love of your life, and you're in deep grief, then you're in a state of mind that's prone to making financial mistakes. According to a number of financial experts, there are at least four major money missteps widowers and widows tend to make once a spouse passes on.
Shaking up your life too soon. Whatever your situation, you probably have some major decisions to make with your partner's passing, but what seems like a logical decision today may not seem so smart tomorrow.
Give yourself some time to really think about what you're doing, financial experts say
"Some people want to immediately pay off a mortgage and make other large changes too quickly. That can create a situation where there [are] little liquid funds available, which may be more important for the survivor," says Rochelle Odesser, vice president of Madison Planning Group, a financial planning firm headquartered in White Plains, New York.
Myra Salzer, who owns The Wealth Conservancy, a Boulder, Colorado, wealth management and financial planning firm, agrees. "Before one has experienced a new equilibrium, decisions that are made tend to be poor ones," she says, reeling off some of the things surviving partners may get wrong: "Widows might sell the family house for less than it's worth, just to get rid of it, or invest IRA assets in annuities to guarantee an income, even though the IRA is already tax-advantaged and the annuity might not pay out enough for the minimum-required distributions."
And for good measure, Roger Bell, president of Roger R. Bell & Company Inc., a planning and investment advisory services firm in Pulaski, Virginia, concurs.
In that first year, he says, "too often, the surviving spouse expends large sums of money to purchase vehicles, improve their house or take extended and numerous trips."
It's understandable. You're recovering from a huge loss. A positive change, like making home improvements or taking a trip abroad, is going to clear your head. But if you aren't careful, it will also clear out your bank account.
This is a time, Bell says, when your "capacity to reason and think clearly is impaired." But he adds: "In time, the surviving spouse will regain their capacity to address matters in a rational and timely manner."
Spending too much. If your husband or wife was the one who paid the bills and made the financial decisions, you may find it empowering to be in control of the purse strings. But be careful. You may not have as much money as you think.
William Matthews, a financial counselor in Houston, says he often sees widows and widowers doling out loans and monetary gifts to family and friends.
"Stop," he says. "You're emotional and shouldn't rush in to help others without thinking about it. You're down to one income, and you need it."
It doesn't mean you can't help your kids with small purchases, Matthews says, but he was struck by what he saw with the daughter of a friend. After losing her husband, the widow gave the couple's daughter $2,000 toward a car down payment and gifted her $5,000 to go toward moving into an apartment. But she shouldn't have parted with so much money, according to Matthews.
"She struggled to pay her bills ... and almost lost her home," he says.
Being too trusting. "The biggest mistake I have seen is being too quick to trust someone, especially in places you may typically have your guard down," says Jeff Weeks, a certified financial planner with ATX Portfolio Advisors LLC in Austin, Texas. "Be wary of the salesperson you know only through places like church and social clubs."
Twice, Weeks says, he has tried to help widows who lost large portions of their nest eggs, over $100,000, "in what turned out to be Ponzi schemes. In both cases, their spouse had been the primary decision maker in financial matters and died prematurely from sudden illness."
In each case, the widow found her financial advisor through referrals at church.
But those are extreme situations, Weeks says. "What's much more common are predatory insurance salespeople or stockbrokers that sell expensive commission-based investments that may qualify as suitable, but that benefit the salesperson more than the client. The salespeople count on unsophisticated clients that are unlikely to read or understand the language in an insurance contract or prospectus."
Weeks makes the observation that "con people rely on a certain level of trust."
It's tough, though. Wouldn't everyone like to think that if they're getting a referral through church, it's as solid a referral as they come? But no -- at least, you can't make that assumption.
Switching financial advisors. Maybe this falls under the category of not being trusting enough. Quite a few financial advisors have mentioned that after a spouse dies, the surviving partner will often change financial advisors.
"A recent study by Fidelity Investments found that 70 percent of widows dismiss their advisor within a year after their spouse dies," says Robert Johnson, president and CEO of the American College of Financial Services in Bryn Mawr, Pennsylvania. "There can be significant costs to changing advisors both in terms of time and money. Surviving spouses should give the advisor the benefit of some time to establish a trusting relationship with them."
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