She lost her husband last October. He was in his 50s. She is in her 40s. He was there one day, and he was gone the next. She and her three kids still try to understand what has happened to their world. How could it happen?
They had a will; the beneficiaries were up to date. His job provided a life insurance policy.
But, it’s not enough. When you lose a spouse, your world changes direction. Your financial past, present and future are all mixed up. Everywhere are reminders.
Before the life insurance money came in, the bills started arriving. A funeral, the mortgage, insurance, a car problem, plumbing, a college tuition payment.
When a letter arrived telling her she could cash out his IRA, she did. The family needed money, and what did it matter anyway? Unfortunately, cashing out an IRA under age 59.5, even as a surviving spouse, will have tax consequences. The IRA money is taxed as ordinary income, and there is a 10% penalty for early withdrawal. In this one sad year, some choices can push taxes up into a higher tax bracket, while the next year employment income is often greatly reduced.
As a financial planner, I meet with people who have lost a spouse, a parent, a grandparent. The grief is overwhelming, and so can be the financial decisions. Usually our first meeting is after their loved one is deceased.
I want to encourage people to take some quiet time to think about their “what if this happened” plan. Where would the money for immediate needs come from? Is there an advisor you trust to help you understand how investment accounts work or when life insurance payments will arrive?
We can talk about building an emergency fund, knowing key passwords, and where account information is kept. We can build a financial plan with account values and investments. You should know you have a professional available to answer your questions, to help guide you through decisions, and keep the long-term plan in place when things are difficult.
Let’s have a positive and proactive discussion. It’s a conversation about caring for loved ones and making their world more secure. It’s a conversation about caring deeply and planning for the best possible future to guide a loved one through the difficult days. Most often the worst doesn’t happen, but it’s a good feeling to know there’s a financial plan just in case.