Karl Eggerss joined Sharon Ko on CBS to discuss 5 common mistakes that he sees surviving spouses make after a death.
Sharon Ko: This topic isn’t necessarily what we want to think about but should plan for and that’s the death of a spouse, Here are the top biggest money mistakes to avoid.
Karl Eggerss: When a spouse passes away, it’s very obviously very emotional. They’re not necessarily thinking about practical things in terms of money. They’re thinking about the immediate stuff and the emotions behind it. I had to deal with this when I was seven years old. My father passed away, so my mother had to deal with a spouse dying at that point with three young children.
Karl Eggerss: I remember there was a lot of stuff coming at her and I would say the first thing that somebody should not do is acting too quickly. They should pause. You’re going to have people saying, you should do this, you should move out of your house, you should invest in this. You should. Here’s what to do with the life insurance proceeds. All those different things. You need to step back. You need to give yourself a few months to just freeze and deal with the emotional part, because there’s a lot of that. Then you can work on the financial aspects.
Karl Eggerss: They may, let’s say for example, a spouse had an IRA. Most people don’t know that a spouse can take that IRA and move it into theirs. But what we see sometimes is the surviving spouse will take the money out of the deceased spouse’s IRA and they’re taxed on it, and they didn’t have to do that. They could’ve moved it into their IRA and let it continue to grow tax deferred. They don’t have to take it out.
Karl Eggerss: If a person’s over 70 and a half, they’re required each year to take out a portion of their IRA and pay taxes on it. Sometimes their surviving spouse won’t do that because they’ll think, I don’t need to do that. But they still have to do that in the year of the death. Let’s say somebody passed away in January, they have not taken that distribution, they need to do that, even though the spouse is passed away. That’s very important because the taxes on that and the penalty for that is extremely high if you don’t do that. And that only applies to people over 70 and a half.
Sharon Ko: This next one seems obvious, but maybe something people really don’t think about is creating a budget.
Karl Eggerss: Yeah. You know a lot of people don’t have a budget, but if they did have a budget it’s going to be very different with one person in the household than two. So recreating that budget and doing it in a different way based on a new lifestyle is something you have to do. Your travel expenses may change, your gasoline expenses may change, your how often did you eat out, how often did you take vacations? All that’s going to change up or down. And so creating a new budget based on your new situation is really important.
Sharon Ko: And the last one, not taking advantage of Social Security rules.
Karl Eggerss: When a spouse passes away, obviously each person may have had their own Social Security, there’s some techniques people can use where you get survivor benefits for a while and then you can switch over to your own Social Security for a higher amount at a later age. When you combine that combination, it’s a lot of extra money over the next several decades. I recently talked to somebody that had a spouse pass away in their early 60s and they’re going to be able to defer their Social Security for a few years, take the deceased spouse’s and then switch to their own, and it’s going to add literally tens of thousands of dollars over their lifetime as opposed to just taking their own.
Sharon Ko: And the rules are different if you’ve been married multiple times.
Karl Eggerss: They are. Exactly. If somebody is divorced, they can even claim their ex-spouses, believe it or not, if they were married more than 10 years and did not remarry, that’s a whole other issue. But yeah, Social Security can get pretty complicated. So talking to somebody that can help you through, that’s really important.
Sharon Ko: Thank you very much to Karl Eggerss.