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Consider this scenario: Paul’s wife unexpectedly passed away a few weeks ago.
Aside from the shock of losing the love of his life, he has a new source of stress he wasn’t prepared for: His wife made 65% of their household income. And he can’t afford the mortgage on his own.
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Now, Paul is wondering what to do. Should he refinance his home? Should he dip into his retirement savings to pay the bills?
While he does have about $30,000 in a high-yield savings account, he’ll also get a life insurance policy payout worth around $200,000. He’s been putting money into a 401(k) at work too, but he doesn’t think he should dip into it before he retires.
So, what can he do instead?
Dealing with the death of a spouse
Managing the devastating grief from a loss is hard enough without the sudden financial implications of being single.
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 slightly harder than men, for a variety of reasons such as lower overall wages, according to a Pew Research Center analysis. 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.
Among widowed women 39% carried over $25,000 in debt following the loss of their spouse, including 10% that had a debt load of 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 is the case with Paul.
If you find yourself in a similar situation, you could consider tapping into the value of your home to help clear any major debts and give yourself some financial breathing room as you grieve. If you have substantial equity in your home, a Home Equity Line of Credit (HELOC) can help you to pay down high-interest debt.
A HELOC is a secured line of credit that leverages your home as collateral. Depending on the value of your home and the remaining balance on your mortgage, you may be able to borrow funds at a lower interest rate from a lender as a form of revolving credit.
Rather than juggling multiple bills with varying due dates and interest rates, you can consolidate them into one easy-to-manage payment. The results? Less stress, generally reduced fees, and the potential for significant savings over time.
LendingTree’s marketplace connects you with top lenders offering competitive HELOC rates. Instead of going through the hassle of shopping for loans at individual banks or credit unions, LendingTree lets you compare multiple offers in one place. This helps you find the best HELOC for your situation.
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What 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 survivor may want to start by doing “financial triage,” or assessing their financial situation, prioritizing paying down bills and doing an inventory of their debts — especially any high interest debt.
One easy way to get a clear and comprehensive look at your finances is with Monarch Money. The platform offers a top-down view to help you track your spending and budgeting, manage your investments and get personalized advice so you can feel comfortable with your money.
You can download the app now for a 7-day free trial. If you like it, you can also get 50% off your first year with the code MONARCHVIP. This can make keeping track of accounts, income and debt easier in the year following your loss.
Read more: You don’t have to be a millionaire to gain access to this $1B private real estate fund. In fact, you can get started with as little as $10 — here’s how
If your spouse had life insurance, you may also get some money from the policy.
In most states, life insurance payouts are issued between 30 to 60 days after a death, though it may be faster, according to Ramsey Solutions. These payouts are tax-free and typically come as a lump sum.
In some cases, it may be possible to also claim survivor benefits, which are monthly payments to the beneficiaries of a deceased family member who contributed to Social Security during their working years. This amount is determined by the deceased’s average lifetime earnings. Not only are spouses eligible, but so are divorced spouses, children and dependent parents. It’s also important to consider other commonly overlooked benefits, such as spousal beneficiary rollovers.
As a widow, you could be eligible for Medicare based on the deceased’s work history. Widows can 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.
While it can be difficult to think of preparing for the end of life when you’re in the thick of middle age — career, kids and daily responsibilities — the best time to plan for tomorrow is today.
For those who want to protect their loved ones from financial stress in the event of their unexpected death, Ethos Insurance offers a policy with up to $2 million in coverage, starting at just $2 per day. Ethos’ application process ensures you get flexible coverage options quickly and transparently, allowing you to focus on what matters most.
Young families and busy professionals looking for fast and affordable insurance can easily connect with Ethos and get term life insurance in 5 minutes, with no medical exams or blood tests required.
Rebuilding your finances — and your life
Eventually, you’ll settle into a life that accounts for only one household income. Once you understand how much money you have coming in, including life insurance payout and any other forms of income you’ve been bequeathed, you can reassess your lifestyle based on your new 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.
Paul may also want to consider downsizing to a smaller home. 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. Getting a roommate to help cover the mortgage and household bills is another option.
Another way to get mortgage payments in line with a single income is to consider refinancing. While there are some drawbacks, including a longer mortgage term, refinancing can help those with money woes fit their home into their new budget.
Mortgage Research Center (MRC) can help you quickly compare rates and estimated monthly payments from multiple vetted lenders. All you have to do is enter some basic information about yourself, such as your zip code, your desired property type, price range and annual income.
Based on the information you provide, MRC will show you mortgage offers tailored to your needs so you can shop for a mortgage with confidence.
After you match with a lender, you can set up a free, no-obligation consultation to see if you’ve found the right fit.
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.
It may also be worth working with a financial advisor, or a grief counselor, to develop a roadmap for the year ahead — from rebalancing your budget to restructuring your lifestyle.
An easy way to connect with a vetted financial advisor is through Advisor.com.
This online platform connects you with vetted financial advisors in minutes. Just answer a few quick questions about yourself and your finances and Advisor.com can match you with an experienced financial professional suited to helping you develop a plan for your new life as a single income household.
You can view the advisor’s profile, read past client reviews and schedule an initial consultation for free with no obligation to hire.
Be prepared
While it can be uncomfortable, it’s important for couples to discuss their end-of-life wishes and make financial plans ahead of time.
Each spouse should know where important documents are 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 your emergency fund should be accessible at all times, it’s also critical to keep it growing, and make sure the money in your fund is working for you. With Wealthfront’s cash account, you can secure a reliable plan offering a 4% APY, which is about 10 times more than the national average.
Wealthfront’s high-yield savings account also offers full access to your money at all times, plus fast and free transfers to internal Wealthfront investing accounts, as well as external accounts.
Fund your new account today with $500 or more and you can get a $30 bonus contribution with Wealthfront Cash.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
