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Fiscal health in widowhood
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May 31, 2000: 9:24 a.m. ET
Surviving a spouse's death can be devastating financially and emotionally
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NEW YORK (CNNfn) - The sudden loss of a spouse is one of life's most devastating experiences. But the struggle to overcome it, especially financially, can be almost as severe a test. Because most of us prefer to avoid the subject altogether, it is hardly surprising that we are typically unprepared to suddenly go on alone.
"You want to curl up in a ball and have somebody else make all the decisions for you," says Kerry Hannon, author of Suddenly Single: Money Skills for Divorcees and Widows. "But this is the worst time to do that. You need to force yourself to make your own decisions."
Memories and money
Statistics show that the plight of the surviving spouse is largely a women's ordeal. Of the estimated 13 million widowed Americans, more than 11 million of them are women, according to the AARP. While the U.S. Census Bureau puts the average age of widowhood at 55, an estimated 500,000 widows lost their spouses before age 45.
Women are at a financial disadvantage on several fronts when their spouses die. Statistically, they earn 74 cents on the dollar compared to men and the gap widens with age, according to the Women's Institute for a Secure Retirement (WISER).
The time women spend out of the work force to raise children or care for aging parents often results in smaller Social Security payouts, and also costs them in pension accumulation and lost chances at promotion. According to the Employee Benefit Research Institute, the Social Security payment for women is 31 percent less than for men, and the average monthly pension for women is 44 percent less.
 Hannon also says most women save too little of their income -- about half of the 3 percent men save -- and invest too conservatively and too late.
"Women don't start investing until they are in their late 30s or early 40s, while men tend to start in their 20s," she said. "In their 20s, women tend to spend on clothes or a nice apartment. They lose on compounded interest by starting so late."
Considering that today women are likely to live into their mid-80s on average, the combination of meager retirement reserves, declining earning power and lack of investing experience could mean their resources will give out before they do.
But with a little guidance, the suddenly widowed can gather the pieces of their lives and learn to fly solo.
Flying lessons
In most cases, widows will face three transition periods: attending to immediate practical concerns, which can take one to two weeks; handling financial and legal concerns, lasting one week to several months; and settling tax concerns, which can take one to two years to resolve.
Addressing immediate needs might better be termed "initial recovery." This is no time for hasty decisions, according to Alexandra Armstrong, a financial adviser with Armstrong, Welch & MacIntyre and author of On Your Own: A Widow's Passage to Emotional and Financial Well-Being.
"In the first few months, even if you think you're thinking rationally, and even if you know a lot about finance, you're not going to have your head totally on," she said.
During this period, a widow should try to focus on gathering, organizing and making an inventory of all assets and liabilities.
She will need to get control quickly of the household bills if she was not paying them previously. She will also need to collect and organize her husband's financial and personal effects, including:
- All bank accounts
- Mutual fund and brokerage holdings
- Safe deposit box
- Vehicle titles
- Home mortgage
- Medical insurance
- Life insurance
- Social Security benefits
- Retirement and annuity benefits
- Credit cards and travelers checks
- Unpaid salary
- IRAs, 401(k), pension and profit-sharing
- Workman's compensation benefits
"What is really frightening is that people don't know where everything is," said Hannon. "Many women don't have a clue where a lot of the investments are or even who their life insurance agent is. They may have paid all the household bills and wrote the checks each month, but they didn't deal with the big-picture stuff. That's very traditional."
Once a thorough search of files, home, autos and the workplace is completed, it's time to assess the widow's complete financial picture. If the couple had a certified financial planner, accountant or lawyer, this is a good time to compare notes with them. Are there assets -- or liabilities -- that may have been overlooked?
Common sources of death benefits include the Social Security Administration, the Veterans Administration, employment coverage and personal life insurance.
A thorough search for death benefits can be time well spent. In addition to a life insurance policy, there may be accidental or sudden death benefits attached to credit cards, bank accounts, loans, memberships in unions or organizations, current or previous employers, or even home, auto or health insurance policies.
Taking off
Once a widow has a grasp on her financial situation, it's time to notify all concerned parties of her husband's passing -- include a copy of the death certificate as needed -- and transfer things such as credit cards, licenses, titles, bank and retirement accounts into her own name wherever possible. This is also a good time to update her own will and life insurance beneficiaries.
The issue of moving often comes up once the financial picture is clear. For most widows, expenses will still run 80 percent of what they were before their husbands died, according to WISER. For any number of reasons, including financial concerns, a widow may decide to move or downsize.
Armstrong advises widows to hold on to their house, at least initially, even if it means a sudden change of lifestyle, such as taking in a roommate to make ends meet. The emotional security, especially for her children, may mean far more than any financial advantage.
"The biggest mistake I see people making is wanting to pay off their mortgage," she said.
"Oftentimes, a widow of any age wants to pay cash for the house because at least they won't have that bill. But with interest rates still at decent levels, it's better to have some liquidity rather than tie it all up in the house. If they're buying a new one, don't buy off the mortgage because it's going to be harder to pull that money out later."
Free flight
At some point in the first 12 to 18 months, a widow may receive one or several large payments, often from a life insurance or pension fund disbursement. This can be the financial updraft they need to fly -- or the invitation to a crash landing.
"When the women I talked to would get a big life insurance payout, for example, they would just flip out. What do I do with this?" said Hannon. "The advice is don't do anything for six months. Just chill out. Take some time to learn about investing, maybe take a class at a community college, find a good financial adviser you can trust, either through a friend or by interviewing them yourself. Most people recommend not making any fast moves with that kind of money."
A widow's best choice may be to park the windfall in a series of rolling CDs or a money market account until she feels comfortable with investing it. The same holds true for the profits from the sale of a house, which may be held for up to 18 months without penalty before reinvesting. That way, her nest egg will be FDIC-insured, earn a moderate 5 percent to 6 percent return and be available until she figures out how to build a portfolio around it.
If she's the sole beneficiary on her husband's 401(k) plan, she may be able to roll that money into her own plan or have it transferred into her name as a surviving spouse's IRA.
But Armstrong says to handle life insurance carefully.
"Don't run and put it in an annuity," warned Armstrong. "That's something widows often do; they like the idea of having a steady income stream for the rest of their life. But if you move it to an annuity and start getting monthly payments, it seems like a lot now, but 10 years from now it's not going to be enough and they're not going to be able to do anything about it because it has gone to the insurance company."
Nor is this any time to spend lavishly.
"I've had young widows who say they spend at the same rate as when their husband was alive even though they couldn't afford it because that way they could pretend he was still alive," Armstrong said. "There's a lot going on there. The big thing is, try to hold on to that money."
Hannon agreed: "Don't make any big investments. Have lunch with a friend one day a week, but don't buy a Mercedes."
Said Armstrong, "The sooner they can get some grip on their finances, the easier it will be on them."
-- by bankrate.com for CNNfn 
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