Dealing with the death of a spouse
Dealing with the death of a spouse is hard on many levels. Suddenly, you’re left without your life partner, but you also have to deal with the financial implications of being suddenly single.
Paul isn’t alone. Individual annual income falls by an average of $5,500 after the death of a spouse for at least two years, according to National Bureau of Economic Research data cited by the Federal Reserve Bank of Chicago. The rate of financial insolvency also increases after the death of a spouse.
Women tend to be hit harder than men, since women on average make less money than men. As of 2024, women earned 85% of what men earned in the U.S., according to a Pew Research Center analysis. They may also leave the workforce temporarily or permanently to raise children.
Women also tend to live longer than men — roughly six years, which can have significant financial implications.
A Thrivent survey found that more than half of widowed women experienced financial challenges, with 51% living paycheck to paycheck or struggling to manage their bills.
One major reason? Debt.
“Debt is one of the top financial challenges facing widowed women. Thirty-nine percent carried over $25,000 in debt immediately following the loss of their spouse, including 10% having over $100,000,” according to the survey.
But the same can be said of any spouse that’s making less money than their partner, as in the case of Paul.
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Learn MoreWhat are the first steps after a spouse suddenly dies?
While it’s generally advisable to avoid making major life decisions immediately after losing your spouse, sometimes you don’t have a choice when it comes to finances.
When a spouse suddenly dies, the surviving spouse may want to start by doing a “financial triage,” which means assessing your financial situation, prioritizing what’s most important (such as paying the bills and paying high-interest debt) and doing an inventory of your debts.
You’ll want to locate important documents, such as the will, property deed and life insurance policy. You’ll have to contact the insurance company directly to inform them of the death and start the claims process.
In most states, a life insurance payout is issued between 30 to 60 days, though it may be faster, according to Ramsey Solutions. These payouts are tax-free and you can take them as a lump sum.
It’s also important to consider commonly overlooked benefits, such as spousal beneficiary rollovers and survivor benefits.
With a spousal beneficiary rollover, the deceased’s fund assets are transferred to the surviving spouse, usually in one of two ways: Either the surviving spouse becomes the new owner of the retirement account or the funds are rolled over into the surviving spouse’s retirement account.
There’s also an option to liquidate the account and receive a lump-sum payment at any time, says the IRS.
When rolling over an individual retirement account (IRA), in most cases the surviving spouse won’t have to pay taxes. A lump-sum payment, however, is likely to be considered taxable income. Keep in mind that a Roth IRA (in which you contribute post-tax money) may have different withdrawal rules than a traditional IRA (in which you contribute pre-tax money).
In some cases, it may be possible to claim survivor benefits, which are monthly payments to family members of a deceased family member who contributed to Social Security during their working years (the amount is determined by the deceased’s average lifetime earnings). Not only are spouses eligible, but so are divorced spouses, children and dependent parents.
According to the Social Security Administration, to be eligible as a spouse, you need to:
- Be at least 60 or older
- Have been married at least nine months before your spouse’s death, and
- Hold off remarrying before age 60.
But, age may not matter if you’re still caring for a child of the spouse who passed away.
A widow could be eligible for Medicare based on their deceased spouse’s work history. A widow could also potentially qualify for Medicaid, depending on their income and assets.
For guidance, contact your state’s Medicaid office or State Health Insurance Assistance Program, which can provide counseling and assistance with Medicare and Medicaid.
Rebuilding your finances — and your life
Eventually, you’ll start creating a new life that accounts for only one household income. Once you understand how much money you have coming in (including a life insurance payout and any other forms of income you’ve been bequeathed), you’ll be able to reassess your lifestyle based on your new household income.
For example, before his wife had passed away, Paul bought a second vehicle. Now that he no longer needs two vehicles, he could sell one and use the money to help him pay down debt or help with the mortgage.
He may also want to consider downsizing to a smaller home. In the meantime, if he can’t afford his mortgage payments (or wants to wait until rates go down), he could consider working overtime or taking on gig work to bring in some extra money. He could even get a roommate to help him cover the mortgage and household bills.
For those feeling overwhelmed by all of this, there are community resources and state programs available that can help with both emotional well-being as well as financial guidance, such as the Wings for Widows and Soaring Spirits International.
It may be worth working with a trusted financial advisor or even a grief counselor to develop a roadmap for the year ahead — from rebalancing your budget to restructuring your lifestyle.
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Each spouse should know where important documentation is stored, as well as passwords for any electronic documentation. It’s also important to have a will that names a beneficiary or beneficiaries; otherwise, the state decides who gets your estate — and that can be a long, complex and emotionally draining process for your loved ones.
Since it can take up to two months to get a life insurance payout, it’s also a good idea to build an emergency fund that will cover expenses during that timeframe. Dipping into your own retirement savings to get by during this time could hurt you in the long run.
While it can be uncomfortable, it’s important for couples to discuss their end-of-life wishes and make financial plans ahead of time.
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