Poor retirement planning can leave a recent widow or widower with no cash at a time they may need it most.
Until the estate is settled -- a process that can take months -- the bereaved spouse or partner won't have access to accounts that were held in one name only, unless the account owner took special care to resolve that problem.
Don't dismiss this as a retirement issue that is limited to very old-fashioned and conservative couples who kept all the family finances in the husband's name, says financial planner Lyn Dippel, principal with Financial Advantage in Columbia, Md. It also affects people whose savings are tied up in retirement accounts. You can't put two names on an IRA or a 401(k), so the spouse or partner -- even when they are named the beneficiary -- may not be able to access the money for weeks if the account is held in a place with slow-moving processes.
Don't count on a power of attorney to solve the problem. While having power of attorney is good for a spouse in the case of illness or disability, it doesn't have any impact after the person giving the power of attorney dies.
Dippel offers these simple retirement planning suggestions for getting around what can be a serious cashflow problem.
- Create a joint cash account with six months' living expenses in it. If you can't manage that at least do three months. Accessing a joint account should be no problem for the bereaved partner.
- Designate a solely held account that is not a retirement account as "transfer on death," or TOD. You just sign a simple form. The account goes to the named person immediately, overriding any instructions in the will. This could be a problem for someone who intended ultimately for the money to be split, but for a couple leaving everything to each other, it's a good solution.
- Create a list of retirement account numbers, phone numbers and, if possible, specific names of the people in the human resources department or at the investment firm familiar with your retirement accounts who can expedite any paperwork.