A financial plan for widowhood

The economic realities after losing a spouse.

Summary: A new study has found most people are not financially prepared for the loss of their partner.

Key take-out: More than half of men and women who lose a spouse are quickly burdened by financial expenses.

 

On average, taken across our total population base, Australians are generally living longer.

Which brings its own challenges in terms of financial security, particularly for those not wanting to rely solely on the government age pension.

Our superannuation system gives most Australians the opportunity to build a sizeable retirement nest egg, and couples are obviously able to pool their financial resources over time to reduce longevity risk – the financial term for running out of your own money before death.

Fortunately, the age pension is in place as a safety net for those who do run out of money, and as a financial supplement to superannuation savings as one’s money does begin to decline over time.

Lots of research has been done in Australia on the fact that, for various reasons, women often retire with much lower superannuation balances than men.

Substantial measures are being taken at a government level to address this issue, but there’s another aspect to financial security that generally receives little airplay. It’s the issue of financial instability and insecurity as a result of the loss of a spouse.

It’s already a well-known fact that women generally live longer than men. The World Health Organisation, in its 2018 World Life Expectancy report, calculates that Australian men on average now live to the age of 81, and women to nearly 85.

That’s an average four-year life gap in the later stages of life, but the reality is that widowhood – a life stage defined by the loss of a spouse– can occur at any time.

A new US study by Bank of America Merrill Lynch and US-based ageing population research group Age Wave looks into the impacts of widowhood in detail as women and men, after having to deal with the emotional stress of losing partner, have to come to terms with the situation on a financial level.

The Widowhood and Money: Resiliency, Responsibility and Empowerment study found that widows in particular are often thrust into taking over the financial reins with limited previous experience.

  • Sixty-nine percent of widows said that the hardest financial challenge in widowhood is becoming the sole decision maker, followed by adjusting to a loss in income (67 per cent) and navigating financial and legal paperwork (66 per cent).
  • Only 14 per cent of widows said that they were making financial decisions by themselves before their spouse died. Now, 86 per cent reported having to do so alone.
  • At the same time that widows are having to make financial and legal decisions and pay for expenses such as funeral or end of life costs, widows are also receiving assets.
  • Eighty-two percent of widows reported that they have received some sort of inflow of assets, most commonly Survivor’s Social Security (69 per cent) and life insurance (63 per cent). The median amount that widows received from any of their spouses’ accounts was US$28,000.

According to the study, 60 per cent of men and women who lose their spouses are immediately burdened by financial expenses, including housing costs such as mortgages or rent. The fact that half of those who lose a spouse also face a 50 per cent reduction in income compounds the problem.

But there was a positive aspect from the study, with more than two-thirds of widows and widowers disclosing that the loss of their spouse had forced them find courage and financial confidence.

“They’re forced to jump into complex financial matters from the start of their journey and adjust to making financial decisions alone,” said Lisa Margeson, head of retirement client experience and communications at Bank of America Merrill Lynch. “In fact, 72 per cent say they now consider themselves more financially savvy than other people their age, and that is empowering.”

If anything, the study is a timely reminder for couples to be actively involved in financial decision making together throughout life, so there is less of a financial burden on the surviving spouse when one partner dies.

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