Managing Money After Losing a Spouse

Episode 2 – Making Money Decisions When WE Becomes I

Michelle & Manisha

Michelle: Greg, my husband, died almost two years ago. Something that happens with grief – if people haven't experienced that kind of death or loss – is it's hard to make decisions. You don't even have the same level of cognitive ability. You're overwhelmed, you're confused. It's hard to do things. In the last year, it's become easier to push through some of the decisions and financial tasks, and wrap up different things from the will and shut down expenses that I didn't need anymore, and stuff like that. But it honestly took me until about a few weeks ago to come home from a trip and realize, okay, I'm finally ready to deal with this.

Jean: Hi everyone. I'm Jean Chatzky, and you're listening to AARP’s Closing the Savings Gap, brought to you by Fidelity Investments. You might have seen me on the Today Show or listened to the HerMoney podcast. I'm also proud to be AARP's Financial Ambassador.  On the next seven episodes, we'll be talking to real women as they work to close the financial gap holding us back in retirement. This is the gap between the income we're on track to draw from our savings and social security, and the amount we're going to have to spend on essentials like groceries, healthcare, and housing. It can be a big gap, especially for women who earn just eighty cents on the dollar compared to men. By age 60, we've earned a whopping $1,000,000 less than our male counterparts on average, and then, because we live a half decade longer, we have to figure out a way to make that money last. Closing the gap may sound daunting, but it is not impossible. Over the course of this series, you'll meet women who have a retirement gap because of a common financial roadblock. It could be debt, overspending, undersaving, lack of confidence when it comes to investing. Don't be surprised if some of these stories sound familiar. My team has matched each of these women up with a financial planner who's taking them by the hand and helping them make the changes they need to retire with confidence, and so that you can do the same.

Jean: On this episode, we look at what happens when "we" becomes "I." We'll meet Michelle, whose husband sadly passed away, but many other women find themselves alone because of divorce, and that seismic shift raises a number of questions. Among them, "What do I do with the house?" Over the past decade, the number of older homeowners holding mortgages has gone up. That becomes tougher to handle if you're living on one income, when you planned on two, so, how do you decide if and when to let go? Another issue we're going to explore is the reluctance many women have to invest. On average, women invest 40 percent less money than men do, according to a survey by digital investing platform Wealthsimple, but there's no reason why this has to be the case. Michelle, a 51 year old writing instructor from Portland, Oregon has been reluctant to invest the money she received when her husband passed away. Welcome, Michelle.

Michelle: Thanks for having me on your show.

Jean: I really appreciate you being here. Mostly because I know how difficult life has been for you recently and I'm so sorry to hear that you lost your husband to cancer.

Michelle: Thank you for saying that. Thanks.

Jean: Tell us a little bit about what the last year or so has been like for you and how this has impacted your finances.

Michelle: One thing that keeps me awake at night and is a bit of an albatross, is I'm in a house that's too big for me. It's overwhelming to hire people to do things, which seems like a waste of money and I feel like I'm spending money I don't need to be spending and I feel like I'm ready to rent out half my house, or sell it and move somewhere smaller, whether it's a rental or you know, a different house that I buy. So that's something that's been going on in the last little while.

Jean: Yeah, it's a huge decision and when we talk about closing the retirement gap, sometimes it is these big things, these big expenses that stand in the way of securing our future for tomorrow.

Michelle: Right. And I've definitely been cognizant of that. I didn't have to move immediately, you know, I wasn't like immediately destitute or I wasn't immediately in danger of losing my home. So I had a little bit of savings to play with, where I could keep paying my too-big-for-my-salary mortgage and my too-big-for-my-taste house, but I am aware of the fact that if I keep going in this direction I'm going to, you know, waste away my savings and potential investment money, and there's just no reason for it anymore. I've kind of gotten to the point where I think it will be less hard to give up my husband's home now than it was a couple of years ago. I couldn't even conceive of doing that a couple of years ago.

Jean: Well, and we should tell everybody, you're young, and I say that as somebody who's 54, so you're 51, you are a baby! So you're a writing instructor, and you've got an income, but it's not a huge income. And so as you think about making these changes, I'm sure both your relative youth and your salary are playing into the picture.

Michelle: Yes, I do work full time. Although admittedly in the last three years I haven't made as much income as I would normally make. I didn't work very much last year just to give myself a chance to like grieve, and try and heal faster. And then the previous year I was helping my husband while he had cancer, so I didn't work as much, and I wanted to spend time with him, But I do have income. It's not like a great income and I'm self-employed so there's no benefits than anyone's giving me.

Jean: Are you thinking about going back and getting a full time job?

Michelle: I have thought about that and that was one thing I considered right away, like do I even change careers in the name of, you know, making a lot more money and being super comfortable in the house? And I thought, but then I'll be unhappy. So I want to keep the career I have. But you know, there are jobs that allow you to work remotely and flexibly. I have COBRA insurance for one more year. Through my husband's employer, they gave me three years of COBRA insurance and so I'm paying for that now, and it's great insurance. Maybe I'm going to look for something that's more of a staff job, even if it's not in the office, it's remote, just to help me with that expense because I've been self-insured before and it doesn't cover a lot and like I said, I'm 51. By nature of my being in my early fifties, I AM a preexisting condition.

Jean: I've never heard anybody put it that way before, but I think you're absolutely right. You know we're going to match you up with a financial advisor to help you close your retirement gap. What questions do you think you'll have for her?

Michelle: Maybe we could crunch the numbers and you know, see which way is financially a better deal? I have some work to do to my house to make the downstairs renter-ready. Another big thing that I wish was already taken care of is the savings I have. I'd like to invest it, but I don't really know what to invest in, picking funds and stocks. Some of my inherited IRA, which is my husband's IRA that rolled into my own IRA is sitting in, you know, pretty much a cash position. That's how the financial institution rolled it over. They rolled it into cash.

Jean: We will absolutely focus her on that and help you come out with a plan for all of these things, and I just have to say from a personal perspective, when my dad passed away, one of the things that I did was help my mom find a financial advisor, because even though she always managed the money in their relationship, she felt like she lost her sounding board and just having somebody else to talk to about these things was really helpful and so I'm hopeful that this experience will provide some of that for you.

Michelle: Yeah, I definitely feel like I need some guidance.

Jean: Well, we will aim to answer all of those questions and we'll check back in with you after you meet with her, all right?

Michelle: Thank you so much.

Jean: My team and I were thrilled to pair Michelle with certified financial planner. Manisha Thakor. Manisha has 25 years of experience in the financial services industry. She is vice president of financial education at the firm Brighton Jones and she's joining us today from her home in Portland, Oregon. Lucky woman. Welcome, Manisha!

Manisha: Jean, it's great to be here. I'm talking to you with the most amazing cup of coffee with me, because that's what life in Portland is like.

Jean: You've got us all jealous. We really, really appreciate you taking part in this project and helping Michelle, who has been through a difficult couple of years.

Manisha: Yeah, she really has, you know, they say the average age of widowhood is 50 and I used to think that can't be true. But as I'm reading Michelle's story, I'm like, well, there we go. This is a classic example. Widowed two years ago at 49.

Jean: I know. It's so sad and it's just something we hear about time and time again. And so I'm glad we can provide some solutions, not just for Michelle, but for so many of the other women who are listening. Before we dig into her situation, let's do the math. What was Michelle's retirement gap looking like before, and what's it going to be if she continues down the road with the changes that you suggest?

Manisha: So Michelle has this unique situation in that she has almost a million dollars in cash and investments, and she's frugal and she has no debt and is up for the challenge of spending less. So, oddly, I rarely meet women like this. Michelle does not have a retirement gap right now due to the silver lining of a horrific situation which was becoming widowed and now inheriting the assets from her husband, but it's a fine line and if she does not stay on it, she will have a retirement gap and it could be quite significant. So, short answer is she is on track right now, but if she steps off the balance beam, ouch. It could be anywhere up to a $30,000 a year gap.

Jean: That's big, and I know that she wants to take the necessary steps to make sure she doesn't end up in that situation. But like many women who've lost a spouse or a partner, she's finding it really, really difficult to move forward. Is that typical?

Manisha: Oh my gosh. Yes. I mean, dealing with money at any point is not exactly at the top of people's lists. We're not taught about it formally. We're not encouraged to talk about it socially. We feel embarrassed that we're great at other parts of our lives, but we don't understand this money stuff and then you throw in grief and UGH, it is just a stew of unpleasant things. And so I often times find that people who have been divorced or widowed don't want to make change, stay in homes, don't want to think about it, and that this can have actually really detrimental longer term consequences. So to help them move forward early on in the process can be vital.

Jean: Let's talk about it step-by-step. That house: $600,000, 22 years left on the mortgage at an income of $35,000 a year doesn't sound affordable.

Manisha: So Michelle has three options. She can keep the home and take on a renter. She actually has enough in cash that she could pay off the mortgage, or she could sell the home and downsize into something that she could pay for in cash because even though that house is expensive, she experienced an unbelievable amount of home appreciation when she and her husband were living in the home. They originally purchased it for $360,000. So much of that is appreciation. The mortgage is $270,000. Interestingly, that third option of downsizing to a smaller home, paying for it in cash, results in her having an extra $25,000 a year to spend in retirement. And right now she is spending – she thinks – $50,000 a year after tax and thinks she'll be on track to get $12,000 in social security payments. So you can see just on the basis of those activities, the downsizing and social security, we are now starting to close the gap with her $50,000 spending need in retirement. And we haven't factored in what could come out of those investments that she has.

Jean: It sounded to me in talking to her as well, that she was ready to let go of the house, that she's feeling like it's just too much for her to handle in an emotional and physical way. Also, this whole notion of downsizing before you have to gives you so much more financial freedom that I think will work really, really well for Michelle.  Let me ask you about a couple of the other line items that I was thinking about for her. Her health insurance seems to be a bit of a worry.

Manisha: Yes. She is currently at the very tail end of being able to utilize her former husband's COBRA through his employer. She's paying $520 a month for that. There's a lot of negative feelings about the exchanges and of course they're run on a state basis, so there's wide variability, but in Michelle's case, as we dug into it, what I saw was that health insurance doesn't necessarily have to be an issue if she's willing to do the hard work and go through the fine print of the exchanges to find the option that meets her specific needs.

Jean: There is so much good information there for so many people. The last item on her list is the idea that she is just sitting with a lot of cash right now, and that if she wants that cash to work for her in retirement and to help her close the retirement gap, she's going to need to invest it. Did you give her some suggestions about how to go about that?

Manisha: Yes, so Michelle has - like many, many, many people - a variety of accounts and she has five different accounts for different retirement accounts, and one taxable individual account. And specifically what I wanted to see for Michelle were three buckets. One that I'm going to call capital preservation, which is making sure that any cash that she knows she's going to need in order to sustain her lifestyle over the next 10 years, is kept in exceptionally conservative investments. That enables us to take more risk with the remainder of the portfolio because we've now immunized her standard of living for the next decade. So matter what happens in the market, she will not have to sell stocks or bonds in a dip. And when people tell me that 2007-2009 ruined their retirement, I know that most likely what happened was either they didn't have that capital preservation bucket, so they had to sell at the bottom to fund their life, or they got scared and they sold in a panic. So the two steps for Michelle are really parsing out what part needs to stay in cash to ensure that she has the emotional fortitude to not shift from her stock bond allocation when the inevitable market correction comes.

Jean: You know, I always tell people that it's so important to get professional help at times of transition. And I'm so happy that Michelle was able to have access to you and all this amazing advice. If I were just to ask you to – in a nutshell – give me the three steps that you want her to take, what would they be?

Manisha: The first thing I want her to know is that while it sounds like she has a lot of money, you know, a million dollars, and this home, she really is only a handful of missteps away from falling into that retirement gap. So the number one most important thing for her to get a grasp on right now is her spending, really being clear on what that number is accurately. Then the second thing we need her to do is make sure those investments are allocated in a diverse, low-cost index-like portfolio so that they are working hard for her. And then the third thing that we need her to do is to think long and hard about whether she wants to continue on the journey that she has been for the last 27 years as a freelancer, or whether she wants to consider moving into the corporate world, or a combination. Because this plan only works if she continues to work for the next 19 years until she's 70.

Jean: It sounds like she is heading out the door with a terrific plan. Thank you so much for working with Michelle and for helping us close her gap.

Manisha: Jean, it's a pleasure. And there's one last thing I'll just say that I think can help every woman out there when it comes to investing, that a lot of people don't focus on. Many people think the key to investing is finding the next hot stock, when in reality a huge part of investment success is keeping your fees low. So the stat that I want to leave every woman with is that each incremental 1% in additional fees you pay eat up 20% of the ending value of your portfolio over a 30 year investible lifetime. So the difference between working with a financial advisor who charges 1% and uses index funds so your all-in fee is well below 1½%, and working with an advisor who charges 1% and uses often high-cost active fees, could result in fees of 2½ or 3%. And so simply shifting to the right type of advisor and investment style could add 20 to 40% to your ending portfolio value. So I just want to share that because that's a universal principle for all women trying to close the gap.

Jean: Fantastic. Thank you so much.

Jean: So it's been a few weeks since we introduced Michelle and Manisha. We wanted to check back in with Michelle and see how she is doing with her new financial plan. Hey Michelle, welcome back.

Michelle: Hi. Thanks for having me back.

Jean: How's it going?

Michelle: It's going well. It was good to see all the numbers on a piece of paper. A little eye-opening.

Jean: Eye-opening in what way?

Michelle: Well, it was a little bit of a wake-up call of things I suspected, but also it was empowering. Like I could finally get a little bit of control, and had some better data to help me make decisions.

Jean: Tell me about the process of working with an advisor. I know this was the first time you did that. What did that feel like for you?

Michelle: It just gave me a lot of clarity because I'm a writer. I used to be good at math in high school, and that was probably the last time. And I’m certainly not a financial wizard. It helps crystallize things and it gave me some clarity and it kind of gave me a little bit of a feeling of control.

Jean: I think I'm hearing it in your voice. You just sound more positive.

Michelle: Yeah, I do feel a little bit more positive. It's true.

Jean: There were a couple of things on your plate where you could go a couple of different ways – the health insurance and the house. Talk to me a little bit about where you think you're going to go.

Michelle: Well, when my COBRA runs out, I definitely am planning to have health insurance. First, I'm going to see if there is remote work out there – full time remote work that might be a match for me. I definitely have a number of friends who do writing and editing work that have jobs where they work virtually and they work for someone else that's, you know, hundreds or even a couple thousand miles away. So, that might be an option to get onto a staff, and then I would get insurance that way. But also there are professional associations like the Freelancers Union, and some of them have health insurance that is better, potentially, even than the health insurance you would get yourself through an exchange. Then as far as the house, I know a change has to happen. I've finally gotten to a place where moving seems something I'm comfortable with and something I can embrace wholeheartedly and be excited about. It's just a little daunting. But I think having, you know, numbers behind it kind of helped me get a little bit more excited and it seems less overwhelming and more like, "Okay, this is the next stage in my life. Where am I going and where am I moving to?" And so I guess I have a lot of research and work ahead of me.

It sounds like it's possibly a whole new chapter for you, which after we go through a period of loss and sadness, I mean it's nice to hear you looking forward.

Michelle: Yeah, it definitely feels like a new chapter. I mean it's felt like a new chapter for a long time, but more in a daunting like, "this was forced on me" kind of way. Now it feels like the beginning of whatever's next.

Jean: Thank you so much for being part of this.

Michelle: Thank you, too.

Jean: Let's quickly recap the steps that Michelle is taking to close her gap. She's looking into selling her home and downsizing in order to save a considerable amount of money every month. She's going to invest her retirement accounts that have been stagnating for a while. She's going to also look at investing her cash, and she's going to make sure that she pays attention to her health insurance policy so that she gets on a new policy before her COBRA runs out. A big thank you to Michelle and Manisha for going down this road with us. We're also grateful to all of you for joining us for this episode of Closing the Savings Gap. Our goal with this series is to make sure that we all not only have enough to survive in retirement, but that we’re able to thrive and actually enjoy it. And for those of you who have enjoyed this program, I'd love to suggest that you check out my weekly podcast, HerMoney with Jean Chatzky.  It is our continuing conversation on money and life — and life and money — for women of all ages. For now, please tune in to the next episode of Closing the Savings Gap, and join us at AARP.org/closingthegap to find episodes, stories, and more great content. Hope to see you there and we’ll talk soon.

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