Confronting Financial Challenges After the Death of a Spouse

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Losing a spouse is a sad life event, of course, and it can also bring financial challenges. Joining me to discuss key priorities for new widows is Nancy Coutu. She is a principal with Money Managers Limited in the Chicago suburbs.

Nancy, thank you so much for being here.

Nancy Coutu: Thanks for having me, Christine.

Benz: Let's talk about retirement planning for widows. I recently saw a statistic that said that upward of 70% of women tend to leave the financial advisor they had when their spouse was alive upon the death of their spouse. They go looking for different types of financial advice or some other person to help them. Do you have a conjecture about why that might be?

Coutu: Yes, because I meet a lot of these women. They are angry. A lot of times they are angry, because, well, one is, they were never brought into the conversation with regard to the investment portfolio when they were married. So, typically, the conversation went directly to the husband. The wife was not encouraged to even participate in the meeting. If she did participate, they either ignored her or talked down to her, never explaining, never asking her opinion on things.

And as a result, now the husband is gone, they are dealing with this financial advisor, he or she--probably a he in that case--knows far more about her portfolio than she does and still tends to have that condescending attitude about, you don't need to know all this, just trust me kind of an attitude. Women tend to want to be educated, they want to know what they have, they want to know what their options are. They are much more curious than maybe their male client originally. It's about changing that communication. If they can't, the woman says, I'm moving on. The biggest problem with that though is that women don't know where to go …

Benz: And what to look for.

Coutu: And what to look for.

Benz: And it's a wild west, right?

Coutu: So, they take it out of the investment portfolio and put it in something, of course, conservative, because women tend to be much more conservative. Number-one fear is outliving their money. They take it and put it in something very conservative, something insured, something guaranteed. As a result, they are not making enough to keep pace with inflation and the taxation. The risk that they are fearful of is actually what sometimes could happen is because they are not earning enough to keep pace with inflation and taxes, they stand the risk of running out of money.

Benz: Before we go any further, I just want to say I'm sure that there are lots of male financial advisors who are absolutely great about working …

Coutu: Oh, for sure. My partner is one of them.

Benz: But let's talk about, say, a new widow comes into your office and thinks that she wants to make a change, but first of all, she is just seeking some counsel about my spouse died two weeks ago, what should I do now? You often hear this conventional wisdom that you really shouldn't do anything in the days immediately following the passage of a spouse or another loved one. Are there things though that should be at the top of the to-do list?

Coutu: There are things that you should do immediately, but it has nothing to do with financial decisions. You're absolutely correct, you should not make any radical--I shouldn't say radical--any financial decisions until you know everything. And you have to educate yourself first.

Assuming that it could the woman that wasn't involved in the meetings, she needs to gather data to know what she even owns. It's about getting statements together, pulling out the last tax return which will be very helpful, getting passwords. Unfortunately, a lot of statements, a lot of information is online. She needs to know what those passwords are to get to those statements. She needs to know beneficiary information. She might assume she is a beneficiary on something and really, she is not. Estate planning documents, if she doesn't remember or it's been a while since they have created them, but potentially she doesn't even know what they put down. It's about looking at how it's established. Was somebody supposed to get money immediately or not.

Then, she also needs to know what her expenses are now. It's itemizing, again, starting from scratch and what are your required expenses, what is the electric bill and the gas bill and the real estate taxes and where is that money going to come from, what are your resources then. It starts with, if she is still working, what is her income, what income might she get or lose when that spouse passes. She could lose a Social Security benefit, she could lose a pension benefit, she could lose healthcare benefits. That type of data she really needs to get down before she can possibly make a financial decision.

Benz: The first step is really to do information gathering and take stock of what's going on, do that temperature check. Slightly longer term, maybe moving out, say, six months following the passage of a spouse, let's talk about some of the things, if you are sitting down with a female client who has recently been widowed,aAssuming that you have a full view of her financial resources, what are things that you would encourage your clients to take action on?

Coutu: Then they have to start thinking about what is life going to be like for me, specifically for themselves. How do they visualize the future? Is it staying in the same place to live? Is it moving? Is it traveling? Are your plans to maybe help your children or grandchildren financially? Oftentimes, it's grandkids and their education. It's just getting down what her goals are. What are her goals for herself? And again, knowing that those goals could change, six months, a year, or two years, but what are your goals right now. Then again knowing that we know the resources and the expenses, we also compare what those goals might cost compared to what their expenses are now. They might be totally unrealistic.

Benz: They might not be doable.

Coutu: Absolutely. So, it's about, first, let's get your dreams down and see how much they cost and then we go back to the resources and say, is this realistic or not. It might be very doable or there might have to be some concessions, in that she has said oftentimes, I don't want to work anymore. And then we crunch the numbers and find out they have to work another five years or more because of the financial loss that they didn't anticipate.

Benz: Right. The loss of an income oftentimes.

Coutu: Loss of an income or loss of a benefit. Healthcare is a huge issue right now. It in and of itself could keep you working.

Benz: Longer-term, can you talk about some of the things that you work with widows on? It sounds like at this point they would have articulated their goals and kind of prioritized them based on their financial resources. Looking a little further out into the future, what are some of the things that you work with older widows on in terms of managing their financial lives?

Coutu: They need some basic documents. They are going to live alone. If they get hurt, whereby they didn't die but they are injured seriously enough such that they can't handle their financial affairs. They need to sit down with an attorney--and I highly recommend an estate planning attorney, not just any attorney. Sit down with an estate planning attorney. Draft the basics, a financial power of attorney, so that you name someone what you trust that can step in and handle your financial affairs if you were unable, that's a financial.

A healthcare power of attorney; what your life support desires. Do you want to be put on life support? Do you not? Don't leave that decision up to your children. It's a huge burden. Or friends or family. It's a huge burden. Name someone that is strong enough and that you have communicated with that could step up and say, no, my mom didn't want to be on life support, and here is the document. It takes the onus off of your kids. You are making that decision on your own. But again, it's protecting your family.

It's financial power of attorney, healthcare power of attorney. Some legacy planning in that, how does she want things to flow in the event that she does pass away. Are there charities and children and grandchildren? That in and of itself is a whole segment of financial planning.

She needs an emergency fund. If she is still working and unable to work, she needs three to six months of her expenses sitting somewhere in an emergency fund that she could easily tap to pay the required bills until she gets well. She also has to again think about long-term care in that if she were debilitated where she couldn't do two or more of her activities, does she have insurance to cover that, does she need insurance. A lot of people don't. A lot of people are self-insured just by accumulation of assets, which is wonderful, and a lot of people don't need long-term care insurance because they don't have enough assets and would qualify for a Medicaid immediately. But the majority of people are right in between. Again, it's knowing what does that really mean in cost. In our area, it's $150 a day for an in-home caregiver. If they are sick enough that they might have to go to a facility, it's $7,000 a month or more. How is that expense going to be paid for, because you have no benefits unless you buy the insurance or accumulate the money.

Benz: Right. You mentioned, Nancy, the possibility of cognitive decline. Women do tend to be hit harder on average by Alzheimer's than their male counterparts. How do you work with clients so that they are building some safeguard against cognitive decline? Long-term care …

Coutu: Family meetings. It's always a conversation. It's not always the easiest conversation, but that's my job is to bring up all the what-ifs. It's not about the wonderful, great rate of return. It's about what if this happens, what if this happens, what if--here are our options. Let's talk about them. What works with you, what can you financially afford, etc. It's a family meeting also. Especially, oftentimes, people are afraid of that fact, or they will say my mom had it, my aunt had it, I'm fearful I might. Then I say, well, you know what, we should start family meetings earlier just so that your family knows me, they know where things are.

We put a binder together for them. My phone number and email and address is right on the front. I tell them, tell your kids to call me first, because I can at least lead them to different professionals, and the meter is not running, if you will. So, we have that family meeting. It gives them peace of mind to know someone can step in, someone they trust, and someone the kids know. Of course, I am sure there's conversation after that meeting in that are you OK with Nancy, and if you are not, do you have people that we should talk to. But there has to be conversation about that.

Benz: In those meetings do you also discuss any responsibilities that the children might have in seeing their parent through a period of cognitive decline?

Coutu: Yes, and it's always who could and who couldn't. That's who you have, for example, as a financial power of attorney, potentially that same person as your healthcare power of attorney, not necessarily so. That person could be a trustee of a trust. But you also don't want to cause wedges within the family. It's really a fine line of conversation. A parent usually wants all the siblings to get along together, and sometimes parents inadvertently create a wedge not realizing by giving one child authority over another child. It's easier for me to have that conversation with them than their kids. I'll give them the what-ifs and scenarios that I have seen in the past and how it worked out either positive or negative. The parents can say, oh, my gosh, I never thought of that. I have seen trusts where there's five kids simultaneously as successor trustees because they wanted to be fair. I came from five kids.

Benz: And that sounds messy to me. I came from six.

Coutu: It's very messy. And you know, they live all over the country. So, we are dealing with sending forms to five people with UPS envelops to get to the next one. It's messy. I tell the parents, you know, I know that you want to be fair. This is not fair. This is very unfair, because you are creating a problem in their lives, they are having to make decisions. They don't have time, they're trying to raise their family. You want to make it simple for them. Then we choose one, maybe two--rarely even two, I discourage even two people--to step up and then we have a family meeting around that.

I always tell them, you know what, it's not an honor to be in that position. It's a huge obligation. I was in that position in my family, and it's a huge obligation. It's time-consuming. It's expensive if they have to fly between states. It can be, again, a very big stressor for them if they are dealing with their siblings. And of course, there's always in-laws involved as well and that makes it even messier.

Benz: Lots of moving parts here. Nancy, great advice for widows. Thank you so much for being here to share your wisdom.

Coutu: Thank you very much.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.