WASHINGTON — The weeks and months after losing a spouse are heart-wrenching and emotionally draining. This period can also be a time of uncertainty as those who are now suddenly single grapple with confusing and often complex financial decisions.
In part one of “common questions newly widowed spouses face, I focused on the immediate financial needs of settling the estate of the deceased spouse, options for receiving life insurance and the decision of where to live.
In this article, I focus on three additional questions to consider that relate to a widowed spouse’s Social Security benefits, investments and bill paying.
1. When do I notify or claim Social Security?
It’s surprising to me how many widows expect to receive both their own Social Security and their spouse’s benefit. The reality is that a widow receives only one benefit — the highest benefit for which you are qualified — which is determined by the Social Security Administration (SSA). If you are already collecting your benefit and you’re the highest earning spouse, it’s possible there will be no change in your monthly benefit.
If you’re collecting either a reduced amount of your own benefit or a spousal benefit, then you may qualify for an increase in your Social Security benefit up to the amount your deceased spouse was receiving.
Another common question is what to do if the deceased receives a payment after their death. If a Social Security payment is received for the month of death or any later months, you are required to return the benefit. The way to return these funds depends on how the original payment was made. One general rule is that a widowed spouse should not cash any checks written to the name of the deceased, including any Social Security payments.
If you are younger or have yet to file for Social Security benefits, several factors will affect the amount of benefit you could receive. While a widowed spouse can immediately begin receiving survivor benefits for minor children, the earliest he or she can collect their own survivor benefit is at age 60. Claim at age 60 with caution as this will permanently reduce your survivor benefit to 71.5 percent of the deceased’s benefit. To obtain 100 percent of the deceased’s benefit, a widow must wait until their own full retirement age. For more details and tips see our article on Social Security claiming strategies women can’t afford to overlook.
No matter where you are in terms of claiming Social Security, there’s a standard process for obtaining survivor benefits. To apply, you’ll need to contact your local SSA office. The funeral home can report the death in advance of your call if they have the deceased spouse’s Social Security number. The SSA will inform you of any documents necessary to claim benefits and will determine the highest amount of benefit you’re entitled to collect. Social Security will also pay a one-time widow’s benefit payment of $255 paid to a spouse to defray some burial costs.
We recommend contacting Social Security about your benefit amount soon after you are widowed because the amount of this income will inform other financial decisions including what to do with insurance proceeds, what living situations you can afford, and whether some of your investment assets will be needed to provide monthly income.
2. Why should I review my investments?
It’s important to review the allocation of your investment assets whenever you go through a major life transition, especially if your spouse was the one who handled this area. There are many reasons you may want to reallocate your portfolio. For example, changes in your income, your level of risk tolerance, your understanding of various investments in your portfolio and your relationship with your adviser are just a few examples of reasons you may wish to makes some changes.
Many times, your long-range plans change as a result of the loss of your spouse, so you’ll want to review your financial plan to inform your decisions about what investments make sense for you now. You should also review the impact your investments have on your taxes now as a single taxpayer.
Once you rework your investment portfolio in the context of your new financial plan and life situation, it’s not once and done. Consider ways that you can keep track of your money and understand the performance of your investments without spending an inordinate amount of time tracking the nitty-gritty details.
The goal should be to provide meaningful analysis without a lot of effort on your part but that ultimately helps you to feel comfortable about your money and about your ongoing financial health. To help you begin this process and get educated about investing, listen to this piece on how to think like an investment adviser to be a better investor.
3. How do I manage to pay my bills?
Once the bigger issues are handled by answering the preceding questions, you’ll want to establish a solid system for the day-to-day management of your ongoing financial obligations. You can explore ways to utilize automatic bill paying or consider hiring a firm to assist you in paying bills. Sometimes it’s helpful to hire help on a temporary basis to pay final medical bills and sort through the mail or files left behind by your spouse.
You’ll also need to convert bank accounts to your sole name and may need to establish or re-link accounts for automatic deposit of your various income sources. It’s also important to designate a financial power of attorney who can step in and manage your finances should you become incapacitated.
I also recommend a new widow hold a higher than normal cash reserve during the early months of widowhood. Doing so allows you to focus on the many transition decisions and reduces stress by not having to worry about whether your bank account is running low on funds.
Many of the early questions that widows face require a clear understanding of their complete financial picture. And some of these questions may require assistance from professionals like a CPA, financial adviser, insurance professional or estate administration attorney.
Losing a spouse can happen at any age, so I encourage you to plan for what you can and seek support from your loved ones and advice from your financial advisers to help you make decisions that are right for you and your circumstances.
Dawn Doebler, CPA, CFP®, CDFA® is a senior wealth adviser at The Colony Group. She is also a co-founder of Her Wealth®.
