The Dividends of death- How to invest & plan for loss
When we lose our spouse, we lose many things… one very important piece being the financial loss we experience. In some instances, we lose a significant contributor, as it’s not always a 50/50 split. In my case, Craig was the majority breadwinner, so it was more like a 70/30 split. As we’re racing the imposed clock that is set when someone dies, we are forced to figure out financial stability. Some us may have a nest egg or savings that we can float on, others may already be receiving some type of supplemental support (IE. Disability, worker’s compensations, unemployment, etc.), and many like myself, are forced to return to work while navigating all of the nuances of grief.
More than half of widows are under the age of 6O, so that means we have to figure out a way to sustain living for at least another two decades!
So how do you know what is safe to spend? What money do you have access to? And how do you protect your future financially?
Maybe you were handling the finances before, so money management feels second nature to you. But for many widows, we are left holding the rubble and trying to figure out where to even start. You find yourself asking “What the hell am I supposed to do now?”
I liken widowhood to Maslow’s hierarchy of needs. For those not familiar, Maslow’s hierarchy is a psychological theory coined by Abraham Maslow in 1943. In a paper he published, he outlines a model of human motivation. This pyramid shows us that we have certain base needs to exist, and we move up the pyramid to fulfillment as we “accomplish” each tier.
So what does this have to do with financial security? One of the bottom levels of Maslow’s pyramid is labeled “Safety”. This entails securing a roof over your head, having food on the table, and feeling safe in general, but it also includes the security of resources. Financial security is a large part of feeling safe & secure, so it becomes imperative to have control over your finances. As I’ve previously mentioned, the worst advice given to widows is to not make big decisions for the first year. I suggest instead, to move, but move cautiously and with education.
The first step is identifying what your current situation is and what are your goals. Your goal may be to pay for the funeral, or provide for the kids, or even just survive until you figure it all out, but knowing what you’re working with and working towards, will help you move forward more securely.
The next step is looking at insurance. Did they (or you) have an insurance policy or plan that can payout? Was there an investment portfolio or retirement package that you can draw from?
You’ll also want to look at real estate. Maybe you have equity in a shared property you can borrow from. Or maybe you are able to liquidate that asset to create cash flow.
To provide better insight into these issues, I sat down with Zach Czaplicki, an Investment Advisor with Charter Oak Financial for his insights on ways you can best handle money after death. Zach and I had a very frank conversation and he was able to answer several questions that you may have about financial planning.
Who can use a financial advisor?
Anyone who has money can use a financial planner, but advisors are different than planners. Planners will look at everything with a dollar sign in your life and help you understand the big picture holistically. They can tell you where money is coming from and where money is going and help you devise a better budget and understanding of your finances. Advisors can take action on the plan on your behalf. They can make suggestions for expenses, investments, and savings to help you work towards your financial goals. They are there to help guide you and keep you on track.
Zach tells me the biggest misconception around financial planners and advisors is that they are just for use for retirement. Lots of people think you only need an advisor if your ready to retire or have a significant income, which simply is not true. Financial planners create education and understanding so you can afford investment properties, or extra vacations, or even just living more comfortably. If you’re looking to connect with a financial planner in your area, search here.
What is a Fiduciary, and why is it important?
A fiduciary is a legally licensed agent who is obligated to act in your best interest. They make fact based decisions and the benefit is the peace of mind around the agent acting in your desired way.
How do they get paid?
Most are fee based, but it is agency/agent specific. This provides the opportunity for plans to be client specific and tailor made. There are differences in planning verses advising fees and those fees are sourced differently. They can be percent based, flat rate, or a combination, depending on agent, years of experience and agency.
What services are offered?
Retirement planning, disability planning, financial planning (overall view of total financial situation). They can run scenarios around big purchase effects to see the long term financial outcome, and provide investment strategy guidance.
When should an advisor be considered?
Anybody who is working full-time should consider working with an advisor. They can set you up for success early on by looking at benefits/retirement/cash flow.
Will I have access to my invested funds?
It ultimately depends on where your money is invested specifically. You can get guidance on life insurance payouts when the time comes. You may also be able to draw from investment accounts. Or if you inherit an account, they can help guide you on investing or having it paid out. There will be taxes and fees associated depending on the type of account.
What benchmarks are used for investments?
most use S&P or Russell 2000
Are there resources for those who don’t think they qualify to work with an advisor?
Everybody qualifies. There is nothing wrong with having the conversation with an advisor whether you think you “qualify” or not. Most likely, the right advisor will find a way to come together to work with you. Financial advisors/planners are here to help solve problems, not give judgments. They provide debt management strategies & financial planning starting points. Most will provide a free consult.
For some, navigating this on your own will feel best, whether that be because you’re savvy to the realm of finances, or because you don’t want to invite a stranger into your personal business, and that is absolutely OK. You have to do what is best for you. Personally, I highly recommend speaking with a financial planner. Even if you choose not to use their services. I spoke with several people throughout my process, and 2 years later, there’s still things I need advice on.
I also sat with Kristopher Kniss, a comparison insurance agent with Comparion insurance for his advice on ways you can best prepare your finances before something happens. He gave advice around what to do with Auto, home, and life insurance policies.
What are somethings I can do beforehand?
Changing named insurance. This means including spouse on the policy as an “administrator” so they can make changes to policy after death. Also, updating martial status when you remove them from your policy. You generally receive a discount on most policies for being married, claiming widowed verses single will protect the discount.
Obtain/request declaration page to review terms for future potential savings. Review it with a local agent for explanation and assessment of the current value.
Have your agent shop rates every 2 years. There is a potential for savings and this allows you to stay in contact with agent for ensured protection.
Build a “schedule of jewelry”. This is an itemized list of all jewelry that has cash value. Have everything individually appraised. The benefit is increased insurance value. Most policies will only give up to a certain amount for this type of property loss within a home policy, and that amount is significantly less than the item’s actually value, usually around 5k in total. If items are individually appraised, you’d receive appraised value.
Consider adding an umbrella policy. Umbrella sits above all other policies as an extra layer of protection in case your current policy doesn’t cover all the loss. It protects for issues with pools, dogs, and net worth assets.
When should I consider life insurance?
As early as you can afford it. Premiums increase with age, so lock in lower prices before health conditions develop. Some conditions will exclude you from coverage, so don’t wait. Having a local agent who can explain and shop rates will help you in the long run.
What is the difference between “Term” and “whole”?
Term: covers anything with expiration date (mortgage, college, etc.) Life: covers final expenses and provide funds to establish trusts.
What is living benefit?
Also known as an extended care rider. This is an add on to life insurance policies that allow you to draw on funds when there is an established cash value to protect clients that have or develop a long term disability. It’s a specific monthly allowance is paid out of the death benefit. That amount would then either be short from the total payout at the end or you’d have the option to pay it back. It’s kinda like a loan against your whole life policy. It is only applicable to whole life.
How do I calculate how much insurance I need?
It’s situational and is based on asset and net worth. Things like home owner verses renter or owning multiple properties will affect how much coverage is needed, as there is more potential for liability.
What is the benefit of using an agent?
Personalized services. Using a local agent provides a face to a name. They can give you that personal and human touch. Many are available for frequent touch bases, after hours services and the ability to shop and bundle multiple policies& products from multiple carriers.
To find a trusted insurance agent near you, check out this resource.
Ultimately, there are lots of facets to financial planning, we’ve only just scratched the surface! The good news is that with help from people like Zach & Kris, you can put your feet on the ground and get headed in the right direction. It doesn’t matter if you’re in the pre-planning phase of you finances, or you’ve found yourself in the immediate aftermath looking for guidance. There is no wrong or right time to start getting control over your situation. I made moves because I had to. I was referred to a financial advisor shortly after learning about Craig’s life insurance policy. They were able to give me some advice on what to do initially with the funds. I couldn’t afford their services at the time, so I took the advice from them, my bank and from google & Pinterest. As a result, over 2 years later, I find myself scratching my head trying to remember where I left the various pieces of my attempt to get my finances in order. I've got several insurance policies, bank accounts, and the like, and now that the fog has lifted, it’s time to regroup, streamline, and rethink some of the decisions I made. Now, I can meet with an insurance agent, like Kris, to bundle my policies and find the best deals. I also can meet with an advisor like Zach to reassess my finances. Ultimately, I have no regrets about making money moves, but If I had it to do over, I wish someone would have given me the advice that I present here to you. Don’t be afraid to make moves, but make them with help to set you up for long term success.
To connect directly with Zach Czaplicki click here
To connect directly with Kris Kniss click here