Laura Mattia's Blog
Women on average live longer than men, and many marry older men.
The result is that most women will find themselves alone since the median age of widowhood is around 60. This is a bad time in any one’s life to become financially responsible since it is usually when wealth is highest and there is more at stake. This is especially true for many married women who did not participate in financial decision making in the past and did not develop necessary skills to make good financial decisions.
The best advice during this emotional time is to take it slow and don’t rush into any major decisions about your financial future. Irreversible decisions made at times of great emotional stress are often regretted. Except in cases of extreme economic necessity, women going through this emotional time should put off decisions about such matters as selling their house, retirement or giving away assets.
Probably most important is to recognize that you must become financially engaged. This means that you need to educate yourself and ask a lot of questions to become knowledgeable about your financial life. Also there are some key things which you probably need to take care of.
The first of these is funeral arrangements. The best way to find a reputable funeral home quickly is to get referrals from friends. Before you leave the meeting with the funeral director, be sure to have in hand an itemized list of everything that you’ve committed to with a total price at the bottom. Amid the confusion that typically overcomes individuals facing this emotional time, it’s easy to misunderstand what things can cost. And costs that you may agree to orally sometimes have a way of growing, much to your chagrin when you get the bill weeks later.
As soon as possible after the funeral, the following things may need attention right away:
- Obtain multiple copies of the death certificate from the funeral home (many provide them) or from the clerk of court in your county or city. These aren’t photocopies of the original. They’re official copies carrying the clerk’s seal, and as such, they’re legally valid for submission regarding estate matters and the transfer of assets.
- Understand current expenses and existing cash. If you haven’t been involved in paying the bills, go through the check register or the account online (after getting the password by visiting the bank with an official copy of the death certificate).
- Get a handle on assets, including liquid assets—such as stocks and money market accounts—that you may need to draw from to pay living expenses. If you do need to take money out of these accounts, be mindful of possible tax and estate (discussed later) consequences.
Also, you should immediately identify and pursue all available survivor benefits, including:
- Life insurance policy proceeds. Notify the insurance company to make a claim, submitting an official copy of the death certificate.
- Employer benefits. Contact the HR department of your late spouse’s employer to determine the status of potential pension and other accumulated retirement benefits, their accessibility and what’s involved in transferring them to you. Be sure to ask the HR department about your health insurance. If you’ve been a subscriber on your husband’s policy, you’ll be eligible for continued coverage for 36 months under COBRA. Also, many companies provide employees with small life insurance policies, so check on this.
- Social Security benefits. Surviving spouses (who were married at least nine months) are eligible for these benefits beginning at age 60 even if your husband was not at full retirement age and did not start benefits yet. There are various ways to optimize your benefits so take your time with this decision. Consider that benefits received prior to full retirement age will be reduced. Despite the reduction, claiming spousal benefits as early as 60 might be a good idea if you need the money but if you don’t, you might be better off if you let these benefits grow and claim later. Still there may also be the option of taking a widow benefit and later switching to your own benefit, or vice versa. Before deciding when to begin your Social Security benefits you may want to use a Social Security calculator (http://www.aarp.org/work/social-security/social-security-benefits-calculator/?cmp=RDRCT-SOCI_JUNE15_011 ) that can account for widow benefits, or consult with a retirement planner who offers advice on Social Security strategies.
- Veterans’ benefits. Some survivorship benefits are available to spouses of veterans, including a one-time payment of $255 upon the veteran’s death.
After you have taken care of the immediate concerns you have time to learn more about financial choices which will have long-term impact.
If you haven’t been financially engaged during your marriage you may need expert advice. Your first contact should be the attorney who drafted your will and estate documents or another attorney who can interpret them. Estate settlement requires some legal work and a lot of legwork, particularly if the estate is substantial. It is best to meet with an attorney early if the estate plan involves any trusts since moving assets could result in an override of the terms and may cost you and your family the loss of significant savings.
After meeting with an attorney, you may also need to engage a financial advisor. This could be well worth it since taking advice from friends who lack professional credentials and objectivity could create problems. Be wary of acquaintances and vendors who come out of the woodwork after you’re widowed, possibly offering self-interested advice, products or services. A good credential to look for in an advisor is the Certified Financial Planner (CFP), indicating an extensive course of study, work experience and successful passage of examinations. Helpful resources for finding advisors include the advisor-locator function of the website of the National Association of Personal Financial Advisors (www.findanadvisor.napfa.org) and the site of the Financial Planning Association (www.financialplanning.com).
In your initial meetings with advisors, look for someone with whom you can communicate and who is clear about fees and how they’re assessed. Consulting qualified estate attorneys and financial advisors as soon as possible may be especially critical for widows who have inherited large estates. Even if you’re the sole heir and the only executor, moving assets around or removing cash from accounts before you’re aware of all of the legal, tax and strategic investing implications can cause irreversible problems down the road. So ask questions first and act afterwards.
Beyond just settling the estate, you may want to contact a qualified advisor to manage your inheritance for the long term. If your husband had a financial advisor who you know, like and respect, you may want to stay with that person. But regardless of whether you use the same advisor or find a new one, you should be aware that your optimal financial planning scenario may be a lot different than your husband’s.
Things have changed and he may have had different goals than yours. Also your income and spending needs probably have changed since at minimum you are now taking care of one less person. Accounting for these elements is crucial to determining what kind of investment portfolio you should have and how it should be managed. A skilled financial advisor can help you determine how your goals may be different now and they will assess your risk tolerance under this new situation. As time passes you will begin to see how this new chapter in your life can also bring you happiness and you will know that your money is positioned to help you achieve it.
Studies of demographic data show that 30 to 50 percent of Americans who make it to age 65 will eventually need to be cared for in an Assisted Living Facility. These same studies demonstrate that almost 50% of women in the U.S. will require this type of care.
When planning for retirement, most of us think about where we want to live, how much we want to travel, how we want to spend our days, and how we’re going to pay for it all - but far too many of us fail to consider the costs associated with changes in our health.
The problem isn’t in becoming sick and dying, the financial risk stems from surviving an illness and then requiring long-term care. Women are more likely to experience the latter scenario, so it is imperative that you plan for this possibility, so you don’t deplete your retirement savings or greatly reduce the value of your estate.
In some parts of the country, a private room in an Assisted Living Facility can cost as much as $100,000 per year and Medicare, generally, does not cover this expense!
One smart option is to buy insurance to cover the cost of long-term care. Unfortunately, research shows that people tend to make insurance decisions that are not in their best interest. The decisions not to buy long-term care insurance is a prime example of this.
Most people have fire insurance because their mortgage requires it. Many of us retain the coverage after the mortgage is paid off because we’ve grown accustomed to the peace of mind that comes from knowing that we’re protected from catastrophic financial loss in the very unlikely event of a home fire.
Insurance decisions should weigh your perception of risk against your risk tolerance.
The primary goal of long-term care coverage is to reduce your financial risk. If you purchase more insurance than you need, the increased cost of the premiums could end up defeating your financial purpose.
This same concept applies to other types of insurance. If you have a very low deductible on your car insurance, your premiums will be much higher. A higher deductible makes financial sense because it greatly reduces the reoccurring cost of the insurance.
Even in states where car insurance is not required by law, most people understand the need to pay insurance premiums to avoid the financial hardship that could be caused by an accident or lawsuit. People pay auto insurance companies to assume risk on their behalf, but when it comes to long-term care they think - “What if I don’t need it?”
The whole point of insurance is to protect yourself from risk, not certainty.
Some people decide against buying long-term care insurance because they believe they have other options. One common assumption is that a son or daughter will care for them, but that may not be possible – especially, if they have to work to ensure their own financial security. Others plan to sell their home, but this is not a good risk-management strategy. Long-term care insurance is meant to protect assets like your home.
In some states, regulators have approved policies that would allow long-term care insurance providers to charge women as much as 50% more than men!
The justification for the discrepancy is that women are more likely to need this type of care so - expected premium increase for women to surface in other states. One way for women contemplating this kind of insurance to save money is by accelerating their purchase thereby locking in premiums before they rise in their state.
When assessing long-term care policies, both men and women should consider the following points:
- Don’t buy more insurance than you need. Brokers will try to sell you a policy with no “elimination period”, the initial period of care that you pay for yourself. This would be like buying an auto policy with no deductible. Choosing an elimination period of 90 to 180 days will greatly reduce your premiums.
- You don’t need a policy that will cover $100,000 a year. You need a policy that will cover much of your risk, covering all of your risk increases the premiums. Another reason not to overbuy is that you may choose to retire to a less expensive part of the country.
- The average long-term care stay is 2.5 to 3 years. One reason to consider insuring for a longer period is that Alzheimer’s patients typically require care for longer periods.
- You can’t buy long-term care insurance directly. Choose a broker who represents various insurance companies so they’re not intent on selling you one of just a few possibly substandard products in their arsenal.
- Beware of bundling. In order to assuage the irrational belief that long-term care insurance is a waste of money because you may not use it. Products that combine long-term care insurance with life insurance have emerged. Two common problems with these bundles are: 1) you may already have enough life insurance and 2) even if you don’t, you can probably get a better price if you break out the policies and shop them separately.
- Delaying the purchase can cost you. The younger you are at the time of purchase, the lower your premiums will be.
Given that the odds of requiring long-term care are so great and the consequences of not protecting your assets are so dire, the decision to purchase this type of coverage should be a no brainer – especially, for women.
The law only requires most advisers to provide “suitable” advice.
That means it doesn’t matter if the adviser benefits more than you do, as long as the advice is generally “okay”, but is suitability really good enough? Did you like the restaurant you went to last night? Meh, it was suitable. How did your surgery go? Okay, the doctor was suitable.
If suitable isn’t good enough for restaurants and doctors, it certainly isn’t good enough for financial planning. Inconsistent standards in the financial services industry have allowed anyone, regardless of their competence or integrity, to claim that they are a “financial advisor” and the lack of differentiation between brokers and investment advisors has resulted in different standards of care by individuals that appear similar.
The distinction is further blurred by aggressive marketing practices that use words like “financial planner” and “financial consultant” to describe broker-dealers and suggest that their actions are in the client’s best interest. The low bar set by the “suitability” standard allows brokers to maximize commissions and fees. The “fiduciary” standard, on the other hand, is principals-based and does not permit any leeway in quality. Unfortunately, consumers can’t easily distinguish between the two, so the fraud, incompetency, and conflicts of interest of the brokerage industry have blemished the entire financial services industry and cost clients millions.
The brokerage industry would like to keep the suitability standard because they’re beholden to their company’s shareholders; brokers have to put the interests of their company before your interests.
What you need is a financial adviser that’s beholden to you - not the shareholders! Advisers who operate as fiduciaries are required by law to put your needs first and they will do so in writing, so make sure you know who you’re dealing with.
This past April, the Department of Labor (DOL) announced a rule that requires fiduciary-level advice for all retirement assets under the Employee Retirement Income Security Act (ERISA). This rule carefully balances much-needed consumer protections with access to retirement advice. The new fiduciary rule applies only to retirement accounts; it does not cover taxable investment accounts or investments purchased with after-tax dollars. That said, many in the industry believe it will encourage the SEC to extend the rule to all taxable accounts.
The key provisions of the fiduciary rule won’t take effect until April 10, 2017, with a transition period that goes through to January 1, 2018, but brokers are already beginning to worry. This rule is a great step towards protecting consumers and improving the financial services industry.
Check out my ABC 7 Roundtable Discussion with Gabriel Hament of Cumberland Advisors and moderator Alan Cohn for more on how the new DOL rule will affect you.