When financial divisions of labor are especially stark, it can put the financial security of the less savvy partner in jeopardy in the event that the other spouse becomes incapacitated or dies. That’s particularly worrisome for women, who wind up widows at a much higher rate than men become widowers. Thirty-five percent Opens in new window of women 65 and older are widowed, but only 11% of men are widowers, according to the Department of Health and Human Services.
Work with your spouse now to prepare them to take on key money management duties before they must do so during a much more difficult time.
Don’t go it alone
It may be easier to plow ahead on your own if you know your spouse isn’t interested in household finances. But make the effort to explain some basics to your spouse. Lay out your investment strategy for retirement portfolios and brokerage accounts. If there’s a life insurance policy, explain to your spouse the necessary steps to take in order to claim the benefit, including whom to call and which types of documents may be necessary.
To further help your spouse in case of a catastrophic event, keep a list of all financial accounts and passwords. This way, your partner will be able to step in easily and access any necessary funds.
Understand retirement account options
Surviving spouses can be faced with a variety of options about what to do with their deceased spouse’s retirement accounts and those options can have significant tax implications. Walk them through different options which can help them reduce their tax burden.
The two basic options are either to roll over retirement accounts into their own IRAs or to move the money into an inherited IRA.
For spouses who are under 59 ½ and need money for living expenses, they may want to consider an inherited IRA. Money can be taken out without the usual 10% early-withdrawal penalty that comes with other retirement accounts.
But a spouse who does not need the money can roll the funds over into their own account, where it can continue to grow tax-deferred until they begin withdrawals after age 59 ½, or at 72, when required minimum distributions (RMDs) must begin. RMDs kick in after age 72 (unless you reached 70 ½ in 2019).
It’s important that both spouses understand who is most likely to need long-term care and how it will be paid for.
Explain how withdrawals work
A spouse who hasn’t paid much attention to saving and investing probably isn’t aware of the nuances of the various withdrawal strategies.
Because different pools of money have different tax treatments, the order of a portfolio’s spenddown can have a significant effect on how much tax is owed—and therefore how much money is available for spending. In general, delaying taxes as long as possible can help minimize them—and maximize income.
As noted above, starting at age 72, owners of traditional IRAs and 401(k)s have to take RMDs, the minimum amount that must be withdrawn and taxed. After that requirement is met, retirees should consider looking at taxable accounts for retirement income first, then move on to tax-deferred assets, while leaving any retirement assets invested in Roth IRAs for last, because the money there will continue to grow tax-free.
Take care of long-term care
For married couples, long-term care isn’t an individual decision. That’s why it’s important that both spouses understand who is most likely to need long-term care and how it will be paid for.
The older and frailer partner may benefit by receiving care from their spouse. But the surviving spouse doesn’t have that luxury. In most cases, again, it’s the female spouse who will outlive her husband and need care. After all, over 70% of nursing home residents Opens in new window are women, according to the American Association for Long-Term Care Insurance.
A long-term care policy can help provide care in the home or in a nursing facility, if you or your spouse are not able to care for yourselves. Discuss whether a joint policy that allows couples to share a long-term care benefit fits your needs. Any portion of the allocated care that the first spouse does not use is often transferred to the second spouse. Make sure your spouse knows how the policy works and how to receive benefits when the time comes.
Getting help when needed
If your spouse worries that the task of managing the finances will be too overwhelming, explain that there’s help. A financial advisor can help them wade through the complexities.
Ideally, the relationship would begin well before a major health issue occurs. But widows often find that an advisor who worked with their husbands is not a good fit for them. By some estimates, 70% of widows Opens in new window leave their financial advisor following the death of a spouse, according to 2011 research by Spectrem Group. Many times they may feel the advisor hasn’t bothered to develop a strong enough relationship with them.
If you are working with an advisor, make sure that person has a relationship with both you and your spouse. If the advisor addresses only you during meetings, consider switching to someone with a more inclusive approach.
What you can do next
No one wants to think about being left alone after years of marriage, but many people face retirement without the comfort and financial know-how of their spouse. Work together now so both you and your spouse are educated about what to do—and avoid compounding grief with (potentially costly) guesswork.