Terrible financial mistakes widows and widowers should avoid

BY WARREN BOROSON

NEWJERSEYNEWSROOM.COM

BOROSON ON MONEY

A mistake that widows and widowers may make is thinking that their late spouse would be upset if they actually had some real fun in life. It might, they suspect, show lack of love. It might, they suspect, show disrespect.

But the late spouse no doubt would want his or her former spouse to be happy and not pine away in misery.

Yet some widows and widowers, out of guilt, deny themselves almost all pleasures.

So said Cary Carbonaro, CFP, a partner with Stonegate Wealth Management in Fair Lawn, during a talk she recently gave on advice for widows and widowers. Sixty percent of her clients are widows (one client is a widower).

She told of a young widow, very fearful of the investing world, who kept all of her money in money market funds and short-term CDs. That excessively conservative approach not only will keep a nest egg from growing apace. These days, with interest rates so low, the young widow was hardly earning anything. “To stay in cash and not run out of money,” Carbonaro warned, “you need an awful lot of cash.”

Widows usually have more trouble than men, she went on, because they tend to outlive their husbands – and their husbands usually handled the family finances. “Every couple thinks that they will reach 100 together, but it rarely happens.”

Another problem she spoke about: the widow or widower who refuses to sell the family home. A widow in her 60s had been married to a businessman earning more than $500,000 a year. She lived in a home they had bought for $2 million. Now she was paying $40,000 in property taxes, and spent $2,000 a month just heating the place. And now she didn’t have her late husband’s income.

If she stays there for ten years, Carbonaro warned her, she would run out of money. That was over three years ago, and the woman still hasn’t made any plans to move. One reason: Selling the house would give her an $800,000 loss.

Carbonaro spoke to the widow’s daughter: Ask her to sell. “It’s mom’s decision,” said the daughter.

“Your inheritance is at stake,” Carbonaro told her.

Another widow didn’t trust people, and wouldn’t hire a professional investment adviser. So she hung onto all her husband’s Internet stocks – and lost 50 percent of her money.

Advice Carbonaro gives to all of her widowed clients:

Consider hiring a therapist or a grief counselor.
Check how you’re spending your money now, what your income is, and prepare a budget.

“Don’t let your emotions rule your financial decisions.” Even if you and your late husband loved your home, whether you continue living there should be a financial decision.

In general, don’t make sudden, major decisions. Leave your investments alone – unless, she said, your late spouse loved to take big risks and you yourself are very conservative.

In which case, cool down your portfolio.

Widows should educate themselves financially. They should read, take courses, pick the brains of their advisers.

Make a list of the things you have to do. Update your will, update the names of your beneficiaries, check whether you’re getting life insurance benefits, get multiple copies of the death certificate, consult your lawyer and other advisers.

Her advice to people before a tragedy:

A spouse should prepare a “letter of final instructions.” It should list the family’s assets and their locations, tell where important assets are, and tell the surviving spouse that he or she can certainly go out and have a good time.
How much cash should you make sure your spouse has – in case you pass on? She recommended: at least $100,000. “You never want to raise cash via a panic sale.”

Her firm charges $300 an hour; 1 percent of assets to manage money; and a flat fee for a financial plan. Stonegate is fee-only; it doesn’t receive commissions.

Stonegate Wealth Management has prepared a paper with excellent advice on writing a letter of final instructions. You can order one by calling 201-791-0085 and mentioning Carbonaro’s talk.

The financial planner has an MBA in finance from Long Island University. She has 20 years of diverse financial experience, including eight years on Wall Street at JP Morgan Chase, three years at Citibank (vice president), and two years as a director at Lord Abbett Investment Management (the second-oldest such company on Wall Street). She was founder and president of Family Financial Research before it merged with Stonegate.

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