Many households come to experience their share of financial challenges over time. Some folks lose their jobs and struggle to find work. Others encounter costly medical issues that cause them to rack up debt. And while these and other financial shocks might easily come out of the blue, the fact of the matter is that we should all be planning for them in the backs of our minds, just in case.
But if there’s one major source of financial upheaval for which planning is imperative, it’s none other than the loss of a spouse. Unfortunately, most widowed Americans didn’t have a financial plan in place to account for such a catastrophic event, according to new data from Merrill Lynch and Age Wave, and as such, coping with that loss became all the more difficult for them.
Though it’s never easy to think about losing a loved one, especially your partner in life, the fact of the matter is that it’s something you need to plan for financially. Otherwise, you stand to face a host of money-related stress on top of what might already be the greatest loss you ever experience in your life.
Hope for the best, plan for the worst
When we think of widows, we tend to imagine older adults left to fend for themselves during their senior years. But in reality, widowhood can creep up on you in your 50s, 40s, 30s, or even 20s. That’s why you must take steps to plan for that scenario, even if it doesn’t come to be until very late in life.
One of the most critical moves you can make in this regard is to purchase life insurance. You don’t need to be rich to invest in a life insurance policy; you just need to be in a situation in which if you or your spouse were to pass, the surviving party (and your children if you have them) would struggle financially without the other’s income.
Now there are two main types of life insurance to choose from: term life and whole life. Term life insurance provides coverage for a preset period of time and is generally the less expensive option of the two. Whole life insurance, on the other hand, covers you for your entire life. Not only that, but whole-life policies accumulate cash value over time, thereby giving you the option to cash out your policy later in life if you haven’t used it by then.
There’s no right or wrong answer when it comes to choosing life insurance. The key, however, is to get some sort of coverage in place in case the worst-case scenario comes to be.
Another key move you can make to protect yourself financially from the loss of a spouse is to keep your fixed expenses to a minimum. By “fixed expenses,” we’re talking about things like your mortgage, your car payment, and even your kids’ college tuition bills. In the aforementioned study, 60% of those who lost their spouses were instantly burdened by expenses, including housing costs. Not only that, but 50% of those whose spouses pass away wind up taking a 50% hit on household income in the process. By limiting the extent to which you lock yourself into expenses, you’ll have more leeway should this sort of tragedy strike.
Planning for the loss of a spouse is upsetting and uncomfortable — but you need to do it anyway, no matter how old you are or how much money you earn. The good news, however, is that once you do, you’ll gain peace of mind knowing that you are, indeed, equipped to handle the situation if it does come to be.