The One Thing Married Women Should do to Protect Their Finances Before They Retire

When Kathleen M. Rehl lost her husband, she remembers, beyond the grief, how much fear she felt. There was an underlying burden of worrying whether she would survive financially.

That was unexpected, considering Rehl was a financial advisor. She was 60 when her husband died at age 72. The two ran a financial advisory firm together, and she didn’t know if it would survive his loss. What's more, the small pension he earned for work as a pastor became smaller upon his death.

“I started freakin’ about my finances,” says Rehl, author of Moving Forward On Your Own: A Financial Guidebook for Widows. “Me, a reasonably smart gal...and I’m going bonkers over the money!”

It’s with good reason. At 15%, widows' poverty rate is three times that of married women, according to new data from the Center for Retirement Research at Boston College. Often, the couple dips deeply into their savings to care for the husband, who leaves a smaller reserve after his death. And Social Security payments often decline upon the death of the higher-earning spouse, reducing monthly influxes of cash. This leaves widows the double burden of increased financial responsibilities later in life and fewer resources to ensure their security.

The best way to protect against this scenario is to prepare before it becomes reality.

Do a Dry Run

When planning for retirement as a couple, you should also rehearse what happens when one of you passes away, says Susan Bradley, a certified financial planner who developed the Sudden Money Institute to help clients with transitional moments in life.

Bradley suggests running a fire drill once a year –- starting before retirement –- where a couple outlines the exact steps to take after each one of them dies. This provides an opportunity to analyze how much money will be available, once the other is no longer around.

During these run-throughs, you can determine the amount of cash that will be on hand, how long it will last, and provide specific next steps to pay bills without creating a backlog of penalties or interest payments. And it provides a checklist for you to turn to while you’re in mourning and perhaps not thinking clearly.

Fill In The Gaps

Regular drills will also give you an understanding of where you might fall short financially.

Expect a reduction in Social Security. The surviving spouse will retain only the higher of the two Social Security checks that the spouses received (assuming both members were drawing benefits). This usually results in a widow receiving just 50% to 67% of the Social Security benefit that came into the household before, according to the Center for Retirement Research. At this time, you can determine if the surviving spouse will need extra funds to make ends meet. After all, your household expenses usually don't drop by half when a spouse dies.

Life insurance can help make up the difference.

“For example, if she expects to live another 10 years on her own and needs an extra $20,000 annually, a [life insurance] policy with a death benefit of $200,000 may replace what she needs,” says Rehl.

Running the numbers prior to retirement will reduce the cost of such protection, since life insurance becomes more expensive as you age. Plus, it’ll ensure you’re not taking out an excessive amount of insurance simply out of fear.

Hold Off On Large Decisions

When a widow suddenly finds herself with an influx of cash, such as from an insurance policy or a payout from the close of the spouse’s business, she’s also often inundated from sales people and sometimes even family members, looking to grab a slice of the pie.

“When we’re grieving, confused, overwhelmed, we tend to make mistakes,” Bradley says.

Avoid large financial decisions in the months following the death, like selling the house, buying an annuity, or even gifting your children a portion of the funds, unless it’s part of the transition plan. Instead, take that lump sum and divide it by 10 years, 15 years or more, depending on your age. Since it will likely be a large portion of your annual income, it’ll help you visualize how the large chunk of money will bleed away as you live longer.

Then, after some time has passed, you can find the best way to invest the funds. “Rarely are you in need to hurry up and make investment decisions,” added Bradley, and that’s especially true when you’re grieving.

Fortunately, everything worked out for Rehl.

“My financial worries really lasted only a little bit,” Rehl says. “I knew that yes, of course I was going to be OK, at least financially.”