Surviving spouse, it’s okay to spend the money

I recently had the experience of counselling a long-time client who, despite a very secure financial position, was overcome with anxiety about money. What became clear to both of us after a lengthy and at times emotional discussion was that her anxiety was not about money at all. Rather it was about her obligations to her children, as the sole beneficiary of her late husband’s estate.

It’s a scenario we see frequently: a surviving spouse, usually the wife (life expectancies between men and women being what they are) of a sole or principal income provider, with more than sufficient capital to sustain her lifestyle is anxious and unsettled. Through discussion, we come to understand that the uneasiness is related to guilt over spending money that is perceived to be earmarked for heirs.

Isn’t it ironic that so much estate planning is directed towards preserving capital for the next generation through spousal trusts, etc., when often lost in the process is reassuring a spouse that it’s okay to spend money to maintain her lifestyle once the principal breadwinner dies.

Yes, there is a balance between spending today and ensuring enough capital is maintained to meet future needs, but let’s not confuse providing for heirs in that equation. Retirement and estate planning are not mutually exclusive, but they are different objectives.

In helping our clients plan for their retirement needs, we at Newport Private Wealth prepare detailed financial projections based upon reasonable assumptions for income, expenses, investment returns, inflation, etc. to determine levels of spending which are affordable (see our earlier post on retirement spending as a percentage of assets). These projections are then modified to identify potential shortfalls in both liquidity and cash flow should the sole income earner die prematurely; in which case buying life insurance payable on the death of the sole breadwinner is often the best solution. But these are relatively straightforward arithmetical equations.

Where we often add greater value and experience is in helping couples talk openly about the expectations and obligations should one pre-decease the other. Most couples say, “we want to enjoy our retirement and whatever is left over should be gifted to our heirs.” This is not an entitlement, but rather a gift to residual beneficiaries after other needs and bequests are satisfied. Both spouses and children need to understand this important difference and recognize and respect the pecking order. Unfortunately, too many families don’t effectively communicate their objectives, often leaving a surviving spouse with guilt and strained relationships with children.

This can be avoided if discussions are held well in advance – both informally and during the estate planning process. Ask yourself first, “does my spouse know clearly and plainly what I want for him or her should I die prematurely?”  “Have I told my spouse it’s okay to continue the lifestyle we both enjoyed?”  “Have I talked to my children about my values and what we have agreed to as a couple?”

Don’t wait until it’s too late to convey important family values and wishes to those who are most important.