How to Plan for Retirement as a Widow
Clarity, control, and confidence for the next chapter of your life.
Understanding Your Reality
63% of women outlive their husbands, when they do they live ten years longer on average. 69% of women over the age of 65 have already experienced widowhood.
Speaking from personal experience, my grandmother has outlived my grandfather by 23 years. Speaking from business experience, our clientele is increasingly divorced or widowed women. I only expect for that to grow over the next decade.
In financial planning, it’s the topic that gets overlooked. It’s without question that while overlooked, planning is prioritized and needed for widows more than any other group of people.
If you’re a widow reading this, any of the following scenarios may resonate with you.
Your spouse made almost all of the financial decisions and you’re not sure where to begin financially.
Your spouse had a good relationship with a financial advisor, accountant, or attorney; the reality now is that you do not know these people very well, can you trust them?
You feel tremendous uncertainty and you’re scared to spend money, you’re afraid you will run out and be a burden on your children. Even worse, you may not have anyone to take care of you.
These are all completely normal reactions; you are not alone. I’m here to tell you today, you’re going to be fine.
What if I told you that all of the things you worry about and that society tells you that you should be worried about, aren’t actually the threat to your financial security?
You’re in a way better position than you realize. The first part of understanding your reality is focusing on what needs to be covered and protected.
We will cover those areas today and more in-depth going forward, let’s dive in.
Make Sure Your Expenses Are Guaranteed to Be Covered
The first and most important step towards feeling more confident is by having an income plan.
A mistake that is commonly made is the tendency to inflate the amount you think you’ll need based on circumstances you are afraid of or could see happening. That is why you’ll have a designated emergency fund.
You want to prioritize and make sure that your basic expenses are covered. Food, housing, insurance, and the lifestyle activities that you enjoy doing. Every time that I do this exercise with a widow, they are shocked at how low this number is.
The average that I see ranges between $2,000-3,000 a month to cover all of the necessary and required expenses.
Most of the time, a widow’s social security and surviving spouse’s benefits are equal or greater to this amount. If they are short, it’s typically by a few hundred dollars. I’ve never seen a widow that has a deficit of thousands of dollars every month.
In your free time, take yourself through the exercise of adding up your essential expenses and your guaranteed income sources. If they are already covered today, your probability of never running out of money is over 95%!
Your reality is that you’ll most likely spend less than you did when your spouse with alive. Every once in a while, you’ll take a trip with a friend or your children.
Those additional experiences most of the time can easily be covered by taking income from your investments, annuities, and other strategies in a manner that reduces your risk of dwindling those accounts to zero.
For the sake of time today, I won’t be going in depth on any of those specific strategies. Each week I will continue to educate further on what they are and how they work most effectively in different situations.
Take More Risk Than You Think You Should
This suggestion, not advice, is counterculture. When big life events happen, there is a tendency to take your foot off the gas.
Ultimately, the amount of risk that you take is based on your circumstance and risk tolerance. Speaking from experience, widows tend to be more risk averse.
One dollar invested today has historically become five dollars in twenty years across all different types of market cycles. That means if you have $100,000 invested today that it will more than likely compound to be worth $500,000 in twenty years.
Imagine you’re 64 reading this today, twenty years from now you’ll be 84. Two things are likely to occur based on history and innovation:
As you age, you have increased healthcare costs.
Healthcare will improve and you’ll feel like you’re only 74. You might have a shot at making it to age 100.
In either of these situations, you’ll be happy that you have more money. You’ll have access to better care, facilities, and doctors. Or if expenses rise above what your fixed income covers, you’ll have extra money saved to live on.
The only person who wins by having all of your money in a savings account or CD, is the bank. They will take your money and take the risk that you should be taking, all while handing you 2-3% back on your money if you are lucky.
By taking more risk, in a calculated and appropriate way, you are taking care of your future self. You’ll age with dignity and peace of mind.
Have a Tax Plan
No one gets taken advantage of more by the tax code than ill-prepared widows. Our widows that are 75 and older are paying an astonishing amount of taxes.
Why? It is because of what’s called a required minimum distribution. This is the amount of money that the government forces you to take from a 401(k) or IRA after the age of 73 or 75 depending on your date of birth.
Here is what happens. Your spouse dies after handling the finances for years, leaving all of the accounts to you. You are scared to spend the money or do anything else with it, after all this is mostly new to you.
Your financial advisor and CPA don’t want to rock the boat. They don’t know you as well so they would rather you keep everything the same than push the envelope with the fear they lose your business.
Ten years pass by and that $300,000 IRA surprisingly grew to $750,000. All of them failed to mention what you find out when you get a letter instructing you to take $30,000 out.
Tax planning historically is done in reverse. You file and prepare taxes based on what previously happened.
Planning for taxes as a widow has to be switched from reactive to proactive. You must have a forward-looking approach to your planning.
Here are the tax planning numbers based on real client experiences at Revolutionary Wealth:
Age 59-63: $850,000 in lifetime tax savings
Age 64-68: $495,000 in lifetime tax savings
Age 69-73: $50,000 in lifetime tax savings
The earlier you are in this age cycle, the more you are rewarded for being proactive with planning for taxation. No, you don’t need to be a widow to be proactive.
A lack of tax planning will cost you anywhere from 0.5% to 1.5% rate of return annually on your money. You can get nothing else right as a widow but if you plan for taxes, you will be significantly better off.
If you’d like to know more specifics on how you can be proactive, keep up with my content every week as I go more in-depth on different strategies you can use to reduce taxes during your retirement.
Spend Time with People You Love
Time is an invaluable thing. The things that bring us the most joy in life often do not cost very much money.
Picking your grandchildren up from school, a cup of coffee with a dear friend, or being involved in a group that gets together a few times a month.
It is the love in our life and the time spent with those we care about that truly matters. Nothing will give you more peace or resolve than focusing on these core areas.
When you realize that the areas that really matter cost you little to nothing, all other fear and insecurity fades away. Materialism is the root of our discontent and unhappiness.
What I’ll remember most with my widowed grandmother is the times she picked me up from school, read me stories when I was falling asleep, and taught me about the way things used to be.
I remember the trips she went with us on, but I can’t tell you what she bought me.
Take the trip and spend time with the people you love. Nothing will help your financial confidence more.
If you do it right, your family won’t want your money. They will just want more time.
Which means if the worst-case scenario really did ever happen, you’ll still have the only thing that matters.
Folgers Black at Four
It’s blasphemy to discuss Folgers after hyping up local coffee but for the special widow in my life, I’ll turn back the clock to reminisce.
The true roots of my love of coffee are truly from time spent with my Nana. Any time I would stay the night or come over after weights, we always drank coffee together.
Folgers black and sugar, great for the growth of any four-year-old ha-ha. Zero cream, no sugar alternatives, just black coffee and cane sugar at four years old.
Taking it further, she’s always made instant coffee. Hardee’s coffee was a delicacy and I still today high key like McDonald’s coffee.
I’m not sure my Nana has spent more than $50 on her and I’s coffee moments. Yet it is a core memory with her that I still think about often to this day.
She always said, “this will stunt your growth” right before she handed it to me, I still need to ask her what her motives were. I’m 6’2 so I guess we can rule that one out.
To building your own memories over a cup of coffee, cheers.
Disclosures:
This blog contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in this blog will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Revolutionary Wealth LLC does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.
Not associated with or endorsed by the Social Security Administration, Medicare or any other government agency.