NEW YORK (MONEY Magazine) -
In 1978, JoAnn Russe was a 21-year-old secretary and part-time waitress who dreamed of having a career as a child-development specialist and one day raising kids of her own.
Her parents had split up when JoAnn was six. After that, she'd had no relationship with her father and her life had been a continual search for security. She found it that year on a blind date with John Russe, a computer consultant 15 years her senior.
The couple married in January 1981 and built an idyllic life together, complete with a big house in Sandwich, Mass., twin daughters, a boat, two horses and a golden retriever. John was the family's breadwinner, while JoAnn worked part time at a child-development clinic and managed the home front.
"John took care of me," JoAnn says simply. "It was as close to a Cinderella existence as you can get."
Then the fairy tale ended.
Several days after Sept. 11, 2001, John complained of feeling "anxious," which he attributed to the terrorist attacks. On Sunday the 16th, he took his 30-foot boat for a long sail in the waters off Cape Cod and returned feeling better. When the Russes went to bed that evening, John seemed fine.
But at 6:30 the next morning, as their 13-year-old daughters Emily and Sarah ate breakfast at the kitchen table, he told his wife, "I'm in real trouble -- call 911." By the time the paramedics arrived, John had collapsed on the kitchen floor, dead from an abdominal aneurysm.
For JoAnn, the sudden loss of her husband quickly became a financial disaster as well as an emotional one. John, who was just 58 and was the head of IT at a Boston law firm when he died, had managed every last penny of the family's money.
"I had hardly ever even written a check or looked at a bill," says JoAnn, now 47. "I didn't know what our mortgage payments were, or how much money we had in the bank. I kept thinking not only how am I going to live without him, but who will take care of us now? What will I do?"
JoAnn's struggle to recover financially is certainly not unusual. While the loss of a spouse can create serious money challenges for either sex, women are more likely to encounter these problems than men, partly because they're more likely to become widowed in the first place.
In fact, seven out of 10 baby boomer wives are expected to outlive their husbands, due to women's longer life expectancies and their tendency to marry older men.
Like JoAnn, many of these widows are woefully unprepared for the financial fallout.
"You'd be surprised at how often a woman is faced with a double challenge -- coping with the loss of her spouse and getting up to speed on the family's finances -- and that's just as true of working women as it is of homemakers," says Victoria Collins, an Irvine, Calif. financial planner and author of Couples and MONEY.
For JoAnn Russe, the challenge is ongoing, as she struggles to get her life back on track and provide for her twin daughters' future.
Coping with the aftermath
Immediately after a spouse dies, two financial tasks become urgent: locating key documents, such as a will and life insurance policies, and figuring out where the cash will come from to support the family in those first few days, weeks and months.
JoAnn quickly located the financial papers she needed but had no idea how to proceed from there.
Luckily John's best friend, Jack Short, stepped in to help. He reviewed John's life insurance policies, which carried a $350,000 death benefit, as well as the household bills and the family's nearly empty bank account.
He determined that JoAnn needed $15,000 to tide her over until the insurance settlement arrived. John's employer quickly came to the rescue with a $15,000 loan and a promise to pay the family's health insurance premiums for the next 36 months. The company also set up a modest trust for the twins, funded by contributions from John's colleagues.
Within a few weeks, though, it became clear that even with the proceeds from John's life insurance, JoAnn would not be able to sustain the family's comfortable lifestyle without his annual income of around $110,000 -- and that perhaps they'd been living beyond their means even when John was alive.
Their monthly expenses were enormous: a $3,000 mortgage payment on their 3,200-square-foot house, heating bills as high as $400, SUV payments of $400 as well, upkeep for the horses of $600 to $800. Maintenance for the sailboat cost $2,200 a year, while annual tuition for the twins' studies with the Boston Ballet was $6,000. Making matters worse, the Russes had little in savings apart from the $105,000 in John's 401(k) and carried about $15,000 in credit-card debt.
For the first six months after John's death, the family simply lived off his life insurance while JoAnn pared down expenses. Key moves: She sold the boat and the horses, stopped ballet lessons for the twins and replaced her leased SUV with a used jeep that cost $18,000.
Planner Collins gives JoAnn high marks for making these tough choices.
"People often bury their heads in the sand and are reluctant to make big lifestyle changes after a spouse dies," she notes. "But sometimes you just have to force yourself to bite the bullet."
Longer-term steps to recovery
As the months passed, however, it became clear that these steps weren't enough. In September 2002, JoAnn went from part time to full time at the child-development clinic where she worked, raising her salary from $18,000 to $37,000 a year. Even supplemented by the $2,300 a month the family receives in Social Security survivor benefits, though, they continued going through John's life insurance money at an alarming rate.
JoAnn realized she needed professional help to figure out a long-term plan. Roughly a year after John's death, she met with Carolyn Howard, a Lexington, Mass. financial planner.
Howard's advice: Sell the house. "People have trouble giving up a home that they can't afford, because of the emotions attached to it," Howard explains. "But it's often a serious financial mistake to hold on."
Reluctantly, JoAnn agreed to put the house on the market, selling it for $413,000 in March 2003. That same month, she moved into a new cottage that cost $315,000. JoAnn withdrew a sizable chunk from the insurance money to put down a big down payment, cutting her monthly mortgage payment to $1,000.
Even so, JoAnn continues to budget tightly, keenly aware that only $35,000 remains of John's life insurance benefits. These days, she shops at Wal-Mart instead of Filene's; fast food and pizza have replaced gourmet dining.
Two years ago, she relied on the trust fund set up by her husband's old firm to pay for several thousand dollars' worth of orthodontics for the girls. She also dips into it each December to pay for their Christmas gifts. Just $3,000 is left. With less than two years to go before the girls graduate from high school and no longer qualify for Social Security benefits, time and money seem to be running out.
Planning for the future
Looking ahead, JoAnn has two key concerns: how she can ease her immediate cash crunch and how she will fund her daughters' college education. The financial advisers contacted by MONEY offer these suggestions:
Pursue ways to increase income. "JoAnn needs to think seriously about retooling her career to boost her income," says Collins.
Financial planner Alexandra Armstrong, co-author of "On Your Own: A Widow's Passage to Emotional and Financial Well-Being," agrees and suggests that JoAnn seek help from a career counselor. "She probably has transferable skills from her work in child development that will allow her to earn more money," says Armstrong.
In fact, JoAnn has already decided to start taking classes this spring toward a master's degree in special education, which she hopes will qualify her for a better-paying job with retirement benefits.
Explore financial aid options. With freshman year for the twins less than two years away, Howard urges JoAnn to begin aggressively looking for scholarships. Since the girls are excellent students and athletes, there may be a number of possibilities open to them, particularly if they have time to bone up on the requirements and fine-tune their academic résumés to fit the bill.
She'll find links to free, comprehensive scholarship search engines at www.finaid.org, along with information about grants, low-cost loans and other financing options.
Put together an estate plan. As a single parent, JoAnn must make sure her daughters are legally and financially protected if anything should happen to her. She has recently drawn up a will and named a legal guardian for the girls. She has also purchased a $500,000 term life insurance policy that names the twins as beneficiaries.
The next step: drawing up a health-care proxy and power of attorney, designating someone she trusts to handle her medical and financial affairs in case she is incapacitated.
For the first time in her life, JoAnn is taking the initiative in managing her money, anticipating what could go wrong and making contingency plans.
"I will never, ever allow myself to be as uninvolved in my own finances as I was when my husband was alive," she says. "I've learned a hard lesson the hard way: You can't count on anyone to take care of you but yourself."
What to do if tragedy strikes
What are the steps you should take to protect your family financially? As you try to cope and put your life back together, consider these moves.
- Pay attention to the financial musts, and put everything else on hold.
- Locate key documents, such as a will, and change the names on your joint financial accounts.
- Check about benefits with his or her HR department to see what you may be due. File a claim for your spouse's life insurance.
- Postpone major decisions, such as whether to sell your home, until enough time has passed for you to make clearheaded choices. Ignore hot tips and gratuitous advice, but seek out wise counsel.
- Beware of the hard sell from unscrupulous financial advisers who sometimes prey on people who are newly widowed.
- Don't assume well-meaning friends and loved ones know what's best for you financially.
- Hire a pro. When you're ready for key decisions, consider sitting down with a financial planner who can objectively review your situation.
- Adjust your lifestyle slowly to your new reality, and carry on.
- Rein in living expenses for the time being, while you consider your next moves. Keep in mind, the death of a spouse often results in a drop in income for the survivor.
- Don't keep assets for emotional reasons. If it does not make financial sense to, say, keep the house, sell it.
- Make changes slowly. Take care of things one day at a time.