| Careful
choices can help brighten the future after the sudden loss of a spouse |
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| Armstrong advises
widows to hold on to their house, at least initially, even if it means a sudden
change of lifestyle, such as taking in a roommate to make ends meet. The emotional
security, especially for her children, may mean far more than any financial advantage.
"The biggest mistake I see people making
is wanting to pay off their mortgage," she says. "Often,
a widow of any age wants to pay cash for the house because at least they won't
have that bill. But with interest rates still at decent levels, it's better to
have some liquidity rather than tie it all up in the house. If they're buying
a new one, don't buy off the mortgage because it's going to be harder to pull
that money out later." Free
flight
At some point in the first 12 to 18 months, a widow may
receive one or several large payments, often from a life insurance or pension
fund disbursement. This can be the financial updraft they need to fly -- or the
invitation to a crash landing. "When the
women I talked to would get a big life insurance payout, for example, they would
just flip out. What do I do with this?" says Hannon. "The advice is
don't do anything for six months. Just chill out. Take some time to learn about
investing, maybe take a class at a community college, find a good financial adviser
you can trust, either through a friend or by interviewing them yourself. Most
people recommend not making any fast moves with that kind of money."
A widow's best choice may be to park
the windfall in a series of rolling CDs or a money market account until they feel
comfortable with the mechanics of investing it. The same holds true for the profits
from the sale of a house, which may be held for up to 18 months without penalty
before reinvesting. That way, her nest egg will be FDIC insured, earn a moderate
return and be available until she figures out how to build a portfolio around
it. If she's the sole beneficiary on her husband's
401(k) plan, she may be able to roll that money into her own plan or have it transferred
into her name as a surviving spouse's IRA. But
Armstrong says to handle life insurance carefully. "Don't
run and put it in an annuity," warns Armstrong. "That's something widows
often do; they like the idea of having a steady income stream for the rest of
their life. But if you move it to an annuity and start getting monthly payments,
it seems like a lot now, but 10 years from now it's not going to be enough and
they're not going to be able to do anything about it because it has gone to the
insurance company." Nor is this any time
to spend lavishly. "I've had young widows
who say they spend at the same rate as when their husband was alive even though
they couldn't afford it because that way they could pretend he was still alive,"
Armstrong says. "There's a lot going on there. The big thing is, try to hold
on to that money." Hannon agrees: "Don't
make any big investments. Have lunch with a friend one day a week, but don't buy
a Mercedes." Says Armstrong, "The sooner
they can get some grip on their finances, the easier it will be on them."
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