From Two to One

Catherine Horiuchi

FOLLOWING MY husband’s death, I went from feeling prosperous to precarious in the space of a few short months. For decades, I’d had something extra in hand, beyond the minimum sum necessary to keep going. That sense of prosperity was now gone.

This wasn’t just my imagination. Studies have found that widows are significantly less wealthy than their married counterparts. One academic article notes, “The death of a spouse is an event that may precipitate a large decline in wealth.” Similarly, a National Bureau of Economic Research study found that, “The death of the husband very often induces the poverty of the surviving spouse, even though the married couple was not poor.”

For me, a decline in wealth might have been fine if our life had been just the two of us. After all, my husband would no longer be spending the money that he would no longer receive. Problem is, I have three children who are not yet grown, and everything else that goes along with a family of four.

Though we never expected nor precisely planned for an untimely end, it turns out that our work-life choices and hopes for retirement had created a financial buffer. We had saved a higher percentage of our earnings than many others and had done so for decades. Still, since my husband’s death, I have been anxious to avoid a steady decline in our family’s nest egg.

To that end, I’ve adopted a strategy for ongoing spending that I borrowed from a health care manual: “To lose weight, eat half what you now eat.” We all know how hard it is to slim down by merely consuming a little less. Our brains and bodies outsmart our best intentions. It seems that, if we want to shed pounds, we have to set far more radical goals. We’ll likely end up falling short—but falling short means we still make progress.

Cutting the family budget triggers the same psychological response and comes with the same pitfalls. While I haven’t figured out when or whether it might be necessary to reduce our family’s expenditures by half, it’s been a useful exercise to determine what would have to change for us to hit that target. I am reducing spending gradually as I see opportunities. For now, I want to limit the cuts to those things that are least visible to the children, so as not to disturb them. Still, sensible reductions will protect the nest egg that my husband and I worked so hard to accumulate.

Here are four suggestions for others who find themselves in a similar situation:

  1. Recognize that the surviving spouse’s lifestyle will likely need to change when the other spouse passes away. Make a plan for more than one possible future.
  2. Financial advisors often remind us not to use our retirement accounts to pay for college. Estimate the cost of putting children through college and launching them into the adult world. Amass savings or buy life insurance in this amount—and consider it separate from your retirement funds—so you protect the wellbeing of your survivors.
  3. Calculate your family’s total wealth as of the day your spouse dies. Use that as a baseline and thereafter keep an eye on total family wealth. Rather than simply watching your net worth decline, take action to slow and eventually stop any decrease. A lifetime of savings, once lost, is extremely hard to rebuild.
  4. It’s never too early or too late to save a bit more. Think of it not as cutting back, but rather as sending money forward to your future self for a time when you—or your loved ones—may have extraordinary need.

Catherine Horiuchi recently retired from the University of San Francisco’s School of Management, where she was an associate professor teaching graduate courses in public policy, public finance and government technology. This is the sixth article in a series. Catherine’s five earlier articles were At the EndThe AftermathWhen It RainsMuddling Through and Missing a Step.

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2 years ago

#3 absolutely (you’ll need it for probate anyway). One of the best things my husband and I did, before he unexpectedly passed away, was to list all our accounts and their value as of 1-1, every year. It was meant to track our progress, but proved invaluable when I had to know how much was where, etc. and later, to change names and consolidate accounts. I continue to do this; it should also make it easier for my children when the time comes.

Langston Holland
Langston Holland
2 years ago

Catherine, as a husband I can’t tell you how helpful your articles have been because it’s surely going to happen to my wife eventually. Thank you. 🙂

I think you are handling things extremely well, but I would like to posit an opinion: don’t think you are hurting your children by reducing expenditures on them, whether that be gifts, education, vacations, etc. I’ve seen rich families and I’ve seen poor, and the latter often have happier and higher performing children. It’s not money, it’s your love. It’s tucking them into their beds at night (regardless of age) and asking them how their day went, how their relationships at school are going, what was the most fun and what problems they had. Pray with them if you’re into that. Just being there, listening and smiling in the face of good times and bad is the real wealth of nations.

Your financial independence in your later years will also be a huge blessing to your children as they won’t have to compromise their lifestyle to support you other than with their love.

Well done. 🙂

R Quinn
R Quinn
2 years ago

You mention life insurance as a vehicle for college bills. What is your view on life insurance as an asset to help alleviate all the other financial issues you describe? Also, while not that common these days ongoing income via survivor annuities under pension plans is also an important consideration for millions of people.

2 years ago
Reply to  R Quinn

Thank you for your questions. Would a life insurance policy have made the first few months less financially stressful? Sure. But buying insurance after retiring can be expensive, and a quick look at an actuarial table provides an individual’s estimated longevity. Money spent on premiums can’t be spent on other things, necessities and niceties.

For many workers, including my spouse and myself, life insurance is an employment benefit. After he retired, we discussed whether he should buy a policy, but decided that our emergency fund would serve the purpose. Which it did.

Insurance works best when there’s a big enough pool of policyholders paying in, with low odds of making claims in any given year, thereby substantially lowering premiums. Some insurance, such as car insurance, is mandated because people don’t want to pay monthly premiums. Most imagine, correctly, they will never get back in claims more than they pay in premiums. (This necessarily is correct, in the aggregate, else insurance companies would go broke.) It’s also psychologically difficult to bet against your own continuing well being.

Pensions and survivor annuities are principal sources of income in my retirement plan. Lucky are those among us who can expect traditional pensions.We both had pension plans though work and each had rights to a survivor annuity. We had done a rough estimate some years back and this also contributed to our decision not to buy additional life insurance.

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