Losing a spouse can be emotionally devastating and is often a difficult time to make important life decisions. The period after losing a loved one is typically when many financial matters require your immediate attention such as handling retirement assets, learning to budget on one income, making sure you're properly insured, and figuring out your Social Security benefits.
To help avoid making emotionally driven and potentially harmful financial decisions, it's important to be prepared as possible before your loss. It can be helpful to become acquainted with your financial situation, for example, income and expenses, advisors, estate plan, and documentation while your loved one is still with you.
By planning ahead, you'll be in a better position to take important steps that can help protect your personal finances after the passing of your spouse.
1. Contact a trusts and estates attorney regarding administering your loved one's estate.
2. Update your financial accounts
When you lose a spouse, you'll likely need to change the registrations on any financial accounts that are owned jointly into your name. Such ownership changes typically require you to provide your financial institutions with copies of your spouse's death certificate. Your trusts and estates attorney can advise you about when and how to re-title accounts in more detail.
3. Divide or roll over retirement assets
Pension and retirement account assets have their own set of rules when one spouse inherits the account from a deceased spouse.
Generally, upon the death of the account owner, retirement account assets pass directly to the beneficiaries (often the spouse, for those who were married) designated on the account. This is why keeping your beneficiary designations up to date on all retirement accounts such as 401(k)s, 403(b)s, and IRAs—is critical.
For IRAs, the surviving spouse receives their spouses IRA assets if they are the designated beneficiary or if no beneficiary is named. If you inherit your spouse's IRA and roll it over into your own IRA, you must start taking required minimum distributions (RMDs) from the account when you turn 73. You could face a 10% early withdrawal penalty if you take out money before age 59½. Rolling your spouse's IRA into your own might be a good option if you're not yet 73 and your spouse was, and you want to keep the money growing tax deferred as long as possible.
Alternatively, you could roll the money into an inherited IRA and avoid the 10% early withdrawal penalty if you are younger than age 59½. The timing of RMDs will generally be determined by your spouse's age at time of death.
Visit Fidelity Life Events Losing a Loved One if you are the surviving spouse of an IRA owner.
4. Adjust your income and budget
After the loss of your spouse, you may be taking a cut in your income, so you may need to adjust your budget accordingly. Start by listing your essential expenses (like housing, food, insurance, and transportation) and your discretionary expenses (like dinners out, vacations, and clothing). Try to match reliable sources of income (such as salary, Social Security, pension, or other sources) to your essential expenses and see where you might be able to reduce your discretionary spending.
If you're near retirement or are already retired and fear an income shortfall, consider purchasing an income annuity.1
5. Evaluate your insurance needs
What you'll have and need for insurance can change dramatically when you lose a spouse. It's important to take a careful look at the different types of insurance that are available to see where you may need to adjust your coverage. A reputable insurance agent can help review your coverage with you.
Be sure to review:
Life If you are the surviving spouse and the beneficiary on your deceased spouse's life insurance policy, you will typically receive the proceeds income tax-free. If you are still caring for children, you may want to either purchase or increase your own life insurance coverage to make sure they will be protected in the event of your demise.
Health Even if your spouse carried your family's health insurance coverage, you could continue to maintain it for a period of time after becoming widowed.
Through the Consolidated Omnibus Budget Reconciliation Act (COBRA), if you're going to lose health benefits because of the death of a spouse, you can continue coverage for up to 36 months as long as you pay the premiums, which can be up to 102% of the cost of the plan.
Because COBRA coverage is expensive in many cases and doesn't last indefinitely, you may want to check out other insurance options, whether through your own employer or by evaluating individual plans available through the Affordable Care Act (ACA).
Disability We all hope we will never need it, but disability insurance is one of the least understood and most useful ways of protecting ourselves and our loved ones. Disability insurance, which is often offered through an employer or can be purchased on the private market, is designed to protect you and your loved ones against lost income.
Long-term care If you're in your 50s or older, you may want to consider buying long-term care insurance to help keep potential costs of nursing home stays and home health care from depleting your income resources if you become seriously ill or injured.
To learn more ways to navigate the costs, options to cover expenses, and insurance policy features, read Fidelity Viewpoints: Long-term care: options and considerations.
6. Review your credit
Your credit can be among your most valuable assets so protect it wisely. After the death of a spouse, you may want to request a copy of your credit report to take inventory of all the accounts that are open in your name and/or jointly with your deceased spouse. You can request a free copy of each of your reports once a year at AnnualCreditReport.com.
Be sure to contact each credit bureaus (Experian, Equifax, and TransUnion2) to let them know that your spouse has passed away, to keep others from falsely establishing credit in their name.
Unfortunately, there are circumstances in which a surviving spouse may be responsible for paying a deceased’s spouse’s debt, including credit card debt. For example, if you live in a community property state or assumed responsibility for debt with your deceased spouse, the surviving spouse may be responsible for paying your deceased’s spouse debt. These debts, if not paid, could impact the surviving spouse’s credit. In some states, the deceased’s spouse’s executor will be responsible for paying the debt from the deceased’s spouse estate. In these situations, the surviving spouse’s credit should not be impacted, but you should always review your credit score regularly to identify and resolve any discrepancies.
A trusts and estates attorney can help you understand how a deceased spouse's debts are handled under relevant law.
7. Maximize Social Security benefits
Social Security recognizes that you were once a married couple and offers benefits to surviving spouses. Generally, you can receive monthly Social Security benefits based on your deceased spouse's earnings record at your full retirement age or reduced benefits as early as age 60. A disabled widow or widower could get spousal benefits as early as age 50 if the disability started before the death of your spouse or within 7 years.3 However, be sure you have researched all your options for when to start receiving Social Security. It could pay to delay taking Social Security until your full retirement age or even a few years beyond it.
Also keep in mind that once you are eligible for your own Social Security benefits, you cannot collect both your deceased spouse's and your benefits but will receive the higher of the two.
You can't avoid the turmoil that comes with the death of a spouse, but recognizing how your personal finances might change could help you make thoughtful, rather than rushed decisions and provide more solid financial ground.