Laurelea Conrad’s husband Steve passed away in May 2014 after a year-long battle with terminal kidney cancer. A longtime veteran of the financial services industry, Steve had carved out a robust career for himself in all things finance. Laurelea, meanwhile, had made an executive-level name for herself in the world of marketing, advertising, and eventually, design — successfully running her own company. Both in their early 60s, the two were well-poised for retirement. That was something Steve had taken care to ensure. After all, he managed their money.
“In my career, I managed departments that made a lot of money for agencies, and I worked with numbers a lot to quote for projects,” says Conrad. “But at home, I didn’t want to touch anything related to money.” Her involvement in managing the household finances was next to zero.
“That presented a big problem when Steve died.”
Emotionally surviving the loss of a spouse is hard enough. But financially surviving it is another thing entirely. “I had no idea what our investments were,” says Conrad. “And I became more concerned about what I would be leaving my daughter, who was 24 at the time. It would just be me who could leave something now.”
Planning for widowhood isn’t something anybody wants to think about, let alone experience. But it’s important. No matter if your involvement in the household finances is 100%, or, like Conrad, 0%, life as you know it will inevitably change, and you need to be prepared. Here’s why — and how — you should plan for financial widowhood.
Widows will likely be listed as the beneficiary of their deceased spouse’s life insurance. Once he or she passes, that life insurance is paid to the surviving spouse. One of the biggest concerns a widow might have when they come to see Rona Birenbaum, a certified financial planner, is whether or not their deceased spouse’s life insurance coverage is adequate.
“Most Canadians are underinsured from a life insurance standpoint,” says Birenbaum. “A lot of Canadians only rely on the group life insurance that comes along with their compensation package.”
The moment he had to hand his Visa card over at the hospital pharmacy for two weeks’ worth of medication, and it was $4,000, was a moment when suddenly I saw that retirement plan flying out the window
While there’s no magic number, Birenbaum says your life insurance should be enough to pay off all household debts, replace the deceased spouse’s lost income through to the planned retirement age, and, if kids are in the picture, enough to allocate for their future education. If your spouse’s coverage won’t extend that far, it might be a wise idea to look at how you can top up your coverage. Young married or common-law couples should consider life insurance sooner rather than later, too. It’s much more inexpensive when you’re young and healthy.
Your retirement savings could take a hit
About one year before Conrad’s husband was diagnosed, the couple reviewed their retirement plan with Birenbaum. Having a third-party review what Steve had worked hard to figure out in his own head, but which Conrad wasn’t exactly privy to, gave both of them peace of mind that everything was indeed squared away for their retirement — before it wound up being just Conrad’s retirement.
“There was an especially scary time in Steve’s illness when the treatment to keep him alive longer was going to cost $8,000 a month,” says Conrad. Fortunately, they were able to get about 80% of the cost of the drug covered through the Trillium Drug Program, but Conrad remembers the fear this sparked in her.
“The moment he had to hand his Visa card over at the hospital pharmacy for two weeks’ worth of medication, and it was $4,000, was a moment when suddenly I saw that retirement plan flying out the window.”
When both partners are pre-retirement and working full-time, the most immediate financial change a widow will encounter is going from a dual-income household to a single-income household. That effectively cuts the retirement savings contributions in half.
“A large percentage of a couple’s retirement cash flow comes from group retirement savings programs or pension plans,” says Birenbaum. If one spouse dies pre-retirement, those retirement contributions stop, leaving the surviving spouse with much less money saved for retirement than they otherwise might have had.
Retirement savings can also come from inheritances. If said inheritance was coming from the deceased spouse’s parents, says Birenbaum, “That might disappear, which means a very different future for the surviving spouse, if the inheritance was going to have a significant impact on their lifestyle.”
You could lose government and other medical benefits
Married or common-law couples collecting CPP each get 80% of the maximum benefit, Birenbaum says. When one of them dies, however, they don’t get their spouse’s 80% of the max that the prior living spouse was receiving. They get a 20% top-up. It’s like the other 80% never existed. “That’s a real problem in the whole design,” says Birenbaum.
That said, widows may be entitled to the CPP Survivor Pension, but only if the deceased spouse was receiving CPP benefits prior to his or her death. How much the widow is paid depends on a number of things. The widow can keep the pension even if they remarry. If someone is widowed more than once, however, they’re entitled to only one survivor’s pension — the larger one.
Married and common-law couples generally benefit from higher tax returns, too. In retirement, for instance, the pension income-splitting rule can reduce the overall family tax burden. “Let’s say one of the spouses has a corporate pension plan that pays $50,000 a year,” says Birenbaum. “A couple can split that income on their tax return, so each person would only have $25,000, and they could benefit from the graduated tax rates. Once a spouse dies, the widow is now going to be treated as one individual. The tax on that $50,000 is going to be higher.”
We were supposed to die in each other’s arms. That’s the standard dream of lovers, right? How this healthy man suddenly turned out to be dying inside was beyond my comprehension
If the deceased spouse had company health and dental benefits, and the surviving spouse was attached to that plan, the widow might be completely uninsured. If the surviving spouse is still employed, but not covered, they should look at joining their company’s benefits plan. There’s generally a window of opportunity for them to do so without providing any medical information.
“It’s not just the loss of employment income pre-retirement, but also the loss of pension benefits post-retirement,” Birenbaum adds, referring to the Old Age Security (OAS) benefit, a monthly payment that Canadian seniors 65 years and over are entitled to receive. “In the case of OAS,” says Birenbaum, “both benefits would be coming into the family pool. But when someone dies, that person’s OAS doesn’t continue.”
So, how should one “plan” for widowhood
A widow can expect to go through three financial phases: logistical (things like planning and paying for the funeral); administrative (things like notifying employers and insurance companies, cancelling credit cards, changing the utility bill from one name to another); and long-term planning (things like readjusting investments and revamping financial plans).
Conrad recalls a list of things Birenbaum gave her to do after her husband died. Like retrieving the death certificate and the will, bringing it to the appropriate people and places, and transferring all joint assets and accounts into her name. “I went to the bank almost every second day, it felt like,” she says.
How soon a widow gets to and through each phase depends on their situation. For Conrad, it took about a year-and-a-half before she felt she had a handle on everything. But, she says, “I’m still learning.”
In order to make the transition to widowhood easier, at least from a financial perspective, Birenbaum recommends rehearsing — while both spouses are still alive and well — what would happen if one of them died. “Do the fire drill,” she says. “Imagine that one person and their income is gone. How would your situation change? How would you pay your bills? How much money would you have? Most people know right away. They just don’t want to think about it.”
And why would they? Conrad grieved the loss of her husband deeply. “We were supposed to die in each other’s arms,” she says. “That’s the standard dream of lovers, right? How this healthy man suddenly turned out to be dying inside was beyond my comprehension.”
But forcing yourself to comprehend the incomprehensible before it happens can actually be an uplifting experience. “People either discover that they’ll be okay, or they put the pieces of the puzzle in place to ensure the world won’t fall apart financially if somebody dies,” says Birenbaum. “There’s a huge peace of mind and sense of pride that comes with that.”
The fire drill forces you to address two things: estate documents (like wills and powers of attorney) and life insurance. “If you do the fire drill,” says Birenbaum, “and you address any vulnerabilities with a well-drafted will and a proper amount and structure of insurance, you’re good.”
Financial widowhood is painful, but it can actually blossom into something more positive. “Once widows come through the dark days, and experience what it’s like to take control of their financial future and then start to live into that future, what they’ve lost is always lost, but then they start to gain something,” says Birenbaum. “Sometimes it’s pride in their own self-sufficiency. Sometimes it’s confidence in the new knowledge that they have. Sometimes it’s just actual surprise that they’re stronger than they thought they were. I start to see a new life emerging for those people and it’s a beautiful thing.”
This past August, Conrad decided to renovate her house. She decided to gut the kitchen, take down the wall in the living room, and install a fireplace. Once she saw how much it was going to cost, she spoke with contractors, her real estate agent, and, of course, Birenbaum. She answered the tough questions: what are the benefits of the renovation? What will I get in potential returns? “It’s the biggest expenditure that I’ve made that I didn’t have to make,” says Conrad, “And, while it has not been easy, I am sure that I’m doing the right thing.”
That confidence has come, in large part, as a result of her facing what she never wanted to: the management of the household finances.
“No matter how little or how much you have, it’s a really good feeling to have a sense of control and ownership,” she says. “I was the last person to want to have to learn all this stuff. After having had the rug pulled out from under my heart and my life, to be able to put my arms around and steward what I do have against what I do want, that’s a really good feeling.”