We all manage our budgets, plan for our major purchases, have financial plan for paying for our children’s college and our own retirement, but we seldom consider end-of-life planning. In reality, 2.4 million Americans die each year — and that number grows every year. Losing a loved one is an unfortunate event. More often than not, we find ourselves unprepared in many ways, especially financially, when it happens.
The majority of individuals that lost a spouse between the ages of 30 and 55 described their spouse’s passing as having a “devastating” or “major” impact on them financially. The Center for American Progress found that in 2010 alone, more than 1 million two-earner married couples were reduced to one earner. With more American families now relying on one income, it’s important to plan for the unlikely and unexpected death of the sole breadwinner. Many surviving spouses had to go back to work or work more hours; some were forced to sell the family home in order to afford less expensive rent or mortgage payment; some had to withdraw retirement & investment accounts to live on or borrow from family. Unfortunately, many families do not prepare for this most significant life event, and the affect can be financially devastating.
It is human nature to look forward to significant life changes like weddings, birth of a child, or retirement because they give us a sense of excitement. We are naturally eager to talk about these positive events and milestones and want to plan to ensure we are successful and our futures are meaningful. But no one wants to plan for difficult events or the inevitable end of our lives. We don’t discuss or consider it until it is upon us as a personal crisis occurs. While we are healthy and of a clear mind, we need to prepare financially so that our loved ones don’t suffer with financial confusion or great need.
Here are some suggestions to help.
Have a budget
It is important that both spouses have knowledge about all the household financial transactions and plans that are in place. This way the remaining spouse is not in the dark on how to manage the finances and where to find important financial information. If you have lost your spouse, start by readjusting your budget and expenditure to adapt to the change in finances at home. Review your current lifestyle and financial goals and be prepared to lower some expectations. Now is the time to tap on your emergency savings to tide you over this difficult period. Don’t neglect to get professional counsel to help you make good & appropriate plans.
Have adequate life insurance
Many people have some life insurance in force and believe it is adequate until after a death occurs. Then, most surviving spouses who received life insurance proceeds describe the amount as inadequate. Employer-sponsored coverage (1-2 times salary in death benefit) is simply not enough to enable a family to maintain its standard of living. It is widely considered that 10 times your salary is a minimum to carry on the primary wage earner of the family. Using a simple formula to assess life insurance need is helpful, but there is no substitute for walking through your personal scenario of need calculating your family’s personal need currently and in the future. You should consider having both spouses maintain life insurance coverage. Many times people overlook the fact that a stay-at-home mom is a very important job that if you put a dollar sign on it, you would be surprised at what a high salary it would be. If you were not around to run your household, your family would be faced with a new, significant expense to employ someone who could help your spouse with child care, cooking, shopping, cleaning, driving, etc.
Complete a will
If your loved one left behind a will, contact the executors to ensure the smooth distribution of the estate to you and your family members. It is important to communicate to your family a centralized location for important papers and information (see Family Love Letter offer below). Make sure there is a list of critical phone numbers, and index of your assets, updated wills, and current health care advance directives, health care powers of attorney, and financial powers of attorney. Additionally, direct your loved ones on personal desires for pets, collectibles and don’t forget to list log in and password information.
Educate your family
The incapacity or death of a family member is always a traumatic event. The emotional turmoil and pain often is magnified by the resulting confusion over the plans, assets and desires of the affected family. The mental fogginess that accompanies the family’s trauma is exaggerated by the inability to make basic decisions when there is a lack of information and direction given.
If you have been left some money and assets or received some benefit from the insurance payment, you will probably be wondering how to manage your money. While it may seem like a large sum of money, it is important to remember that the money is to pay for both the family’s everyday needs and long-term needs, so get counsel and be prudent.
To receive “The Family Love Letter” which provides a format to plan and valuable information for your loved ones in a time of trauma & confusion, email Jeff Masters. (This document does not provide legal, tax or financial advice)
Jeffery Masters, president of Jeffery W. Masters & Associates, can be reached at [email protected] Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Independent Financial Partners, a registered investment advisor. Independent Financial Partners and Jeffery W. Masters & Associates are separate entities from LPL Financial. Jeff is a Locally Endorsed Investment Advisor by Dave Ramsey, who is not affiliated with LPL Financial