A letter to my widow
I am the one obsessed about finances in our house. Updating our monthly net worth spreadsheet and ensuring we are not paying mindless monthly fees for things we don’t use (i.e. magazines, Netflix, etc.). I allocate our investment portfolios and ensure that we have paid into our IRAs and 529s annually. It is not that my wife is not interested, it is more that I am very interested.
So why would she not let me take care of this aspect of our lives. If someone is passionate about something, then they are likely to do it well and regularly.
My wife is involved though. We discuss our monthly spending and net worth, our future goals, and why this is important. She is not a big spender. She knows I have a plan, but what if I died? What would my wife do then? Would she know what my plans for our money was?
Many blogs discuss the importance of term life insurance. Buying life insurance provides for your loved ones if the breadwinner dies. My wife will receive $3 million if I die. That amount of money, along with our investments, is a large chunk of change. It is like winning the lottery, but depressing because your loved one just died. Much like winning the lottery, if you do not have a plan for it then you may end up in trouble.
So today I am writing a letter to my hypothetical widow, to discuss what I would recommend she do with such a windfall in the unfortunate situation that I die. I assume she would follow the same path we have thus far, but at the end of the day she will have to make the decisions. This is just a map down that road.
(Of note, I have left out any of the emotional writings that would obviously come out if I knew I was going to die. This is a personal finance blog and not a telenovela. Still writing this letter left me quite depressed. Even the idea that I could die and not be here to spend time with my loved ones is humbling. The premise of this letter is that we are not financially independent yet. This is our current reality. I will cancel my term life insurances and has a plan in motion once we are financially independent.)
My loving, beautiful wife,
I cannot imagine how you must feel while reading this letter. Read this letter when you are ready and use it as a map to managing the money that you just received.
First 3 to 6 months
Please take the money that is coming in. The $3 million dollars, and divide it amongst many banks. Remember that the FDIC insures up to $250,000 per bank. That would mean you should divide the money up amongst 12 banks to ensure that it is safe. Not that I would be expecting a banking crash, but you never know.
Sit on the money for 3 to 6 months. Grieve. Contemplate. Adjust. Figure out what is next. You do not have to make any money moves during this time. In fact, you could sit on the money for a year and still be okay. Just divide it up and keep it safe.
6 months to a year
Decide where you want to live
Now that my job is not our lives tether, think hard about where you may want to live. Would you like to stay in our same town because of our friends or move closer to your parents or sister? Once you have made that decision you can decide what to do with the house. You can pay it off using $1 million of the cash, sell it and downsize, or sell it and rent for a while (particularly if you move). At some point I suggest you buy your home in cash. Get rid of all of the debt in your life so you can be free to live it as you wish.
Studen loans- if still unpaid
My student loans should be forgiven. Make sure to check with the loan company (Great Lakes in my case) and ensure it is off the books. You do not want to be stuck with a surprise debt in 1 year or have a collection agency called due to this oversight.
Since we have Roth IRAs, you can rollover my Roth IRA into your own Roth IRA without paying penalties if the funds have been in the account for at least 5 years. For funds that have been in the account for less than 5 years, a penalty will be charged. You can consider not touching this account for at least 5 years after my death and then rolling it over, but in many ways I suggest just simplifying your life and rolling these over into your own account.
You cannot cash out the Roth IRA if you are younger than 59.5 years old without having to pay the 10% penalty. If I am already over 59.5 years and taking my required minimum distribution then you can continue taking out those funds without a penalty. Let this grow as long as you can as we have already paid the taxes on it up front. You cannot do a schedule change based on your age for the required minimum distributions for a Roth IRA.
Our IRAs have been fully invested into a S&P index fund provided by Vanguard. Keep the allocation the same for now. Later, you can decide on reallocating funds.
(Not for my wife, but for others. If you have a traditional IRA that you have inherited, you can submit a schedule change and take required minimum distributions based on the widows age).
I would recommend you take my 401K funds and roll it over into your own account. This way it will be in your own name instead of just keeping it in mine. Let this grow as long as you can and remember you will have to pay taxes on it as you withdraw the cash.
Our 401K funds have been allocated in a blend of funds that include XXXX. Keep the allocation the same for now.
Don’t forget about Social Security. I suspect it will be around in 30 years when you qualify and if it is you will be entitled to a pay out. I suspect my payout would be higher than yours due to salary earned and years of work. Just check with the office. This stuff is complicated and likely to change in the next 30 years, so don’t worry too much about it now.
There are both in our son’s name so there is nothing to do. Just realize that they are there and growing. Feel free to contribute annually, though I think you could just use the cash from the life insurance plans to pay for his education. That way, if he wants to do something other then go to college, there will be no penalty for using the money.
One year mark
I hope that much of the grieving is done. By now you have hopefully decided where you will live and either paid off our home or found a new place to live. You should be debt free as that will provide the greatest flexibility in life going forward. Also, you have hopefully consolidated and transferred my Traditional 401K and Roth IRA plans into your own or kept them as is and have them marked so as to not forget about them
Now it is time to think about what to do with the cash you have left in the bank. Hopefully it will be between $2 million and $2.5 million depending on the home you purchased and what you have spent to live the last year.
Keep 6 months to 1 year of spending as cash. I suspect this will be between $35,000 to $60,000 depending on how you are living. We spent about $60,000 a year as a family after mortgage and student loan payments. You should not have a mortgage and thus $60,000 is a very easy mark to meet.
Consider keeping another $100,000 in cash for any investments you may want to do in the future. I am not sure you will want to, but better to have the option open to you for the first few years.
I recommend taking the remaining cash and investing it in an after tax investments. I would do a three fund portfolio through Vanguard.
The three fund portfolio includes:
- Vanguard Total Stock Market Index Fund (VTSMX)
- Vanguard Total International Stock Index Fund (VGTSX)
- Vanguard Total Bond Market Fund (VBMFX)
Your allocation will depend on how aggressive you want to be, but to start I would recommend doing the following:
- 80% VTSMX
- 10% VGTSX
- 10% VBMFX
As you get older you may want to invest a larger portion into the bonds portfolio. Also remember to buy Admiral’s shares any time you can as the expense ratio will be smaller. The lower the expense ratio the more money you save. Consider reading The Bogleheads’ Guide to Investing to learn more.
As with any stocks, you will have times when the value will be down. Maybe down a lot. Just sit tight and don’t sell. The strategy is to buy and hold. Over the years the stocks will regain in value and you will see your money grow.
Also don’t try and buy individual stocks. We are going for simplicity here. That is where the 3 fund portfolio comes into play. The plan is “set it and forget it”. You can consider looking at the funds once a year and reallocating them. For example if you are now 85% in VTSMX, 4% in VGTSX, and 11% VBMFX, then reallocate to the 80/10/10 discussed above. Other than that, I would not recommend touching the stocks.
From your loving husband,
So there you go
Quite a morbid thought, but we all buy term life insurance to protect our loved ones. Why would we not leave a road map for them to follow too. I hope my wife never has to use this plan.
Also, as we get older and closer to financial independence I will start weaning down the term life insurance policies we have. I will cut it from 3 million to 2 million and then 1 million. Finally I will be able to get rid of it completely.
Have you ever discussed a road map with your loved one if you die and they inherit a large chunk of cash?
Also published on Medium.
16 thoughts on “A letter to my widow”
Not exactly the easiest thing to talk about but so important. My partner and I are both pretty involved in running our finances so I think he would be able to manage things just fine if I weren’t around but I know that’s not typical for most couples. I work in finance and have seen how much harder it can be for a surviving spouse when they not only have to deal with the loss but also try and figure things out moneywise. Not only would this be helpful for practical reasons, but I’m sure knowing you’re still looking out for your wife would mean the world.
You must have an interesting perspective due to working in the financial world. I have full faith in my wife’s abilities but imagine it would be hard to focus on this stuff if she was suddenly a single mom. The kid would come first and the finances would fall to the back burner. So this may make it a bit easier. Thanks for reading!
I should do something like this for my husband. I’m the one that manages all the money and financial things around here, and I don’t think he’d know what to do if I were to pass away. I do have the investment policy statement, and review the assets with him every quarter, but I don’t think he’d really know what to do with anything. Thanks for the reminder DDD!
My pleasure. I was thinking the same thing and that’s what led me to write this. She appreciated it and as long as I keep the site up it will be on the internet for eternity.
As I get older, I wonder what people will do with my estate. No one wants to leave a financial mess, and everyone always thinks there is more time to get it done.
It’s a bad deal when you have too many loose ends, and yet hard to think about the fact that you will not be here.
I agree 100%. That is why I think simplicity is the key. Keep taxable accounts, 401Ks and IRAs in the same reputable place if possible. Have plans for business assets and properties upon your death. Just keep it simple so that when the day comes, your loved ones won’t inherit a complicated group of assets.
Life Insurance, wills and trusts are alway depressing topics. We recently updated our wills given some changes in the family. Meeting with the attorney is always a hoot. Envisioning the many ways your family could be taken out and how to allocate dollars to extended family. Always a recipe for a week long battle with the Mrs.
The point is you care enough about your family to let them know your intentions. Making a plan will ultimately ease the grieving process.
Letting intentions (financial or otherwise) be known is so helpful when both healthy and not. It is interesting how two people in love could disagree about so many things when thinking about death.
I see this letter as a great symbol of your love for your family.
I’m in charge of the finances and besides high level amounts, my husband has no idea or interest in any of it.
I need to write a similar letter.
I will write a similar letter.
Glad to hear this Sarah. Many of us our good at planning for the day to day but forget about the unexpected. I appreciate the kind words and hope your letter is well received by your husband.
One you may have missed depending on age. Social security will pay out some money while the kids are under 18 should you pass as a death benefit. Consider Filing for it.
Good to know. Thanks for adding that to the mix. I was unaware that Social Security could be so generous.
You can get the exact benefit amount (“survivor benefits”) if you login (or create) an account At SSA.gov. It’s extremely useful for estate planning and I was definitely surprised how high the benefit is!
Awesome. Thanks so much. I will have to check it out and see where we are.
This is a great idea… it reminds me of JMoney’s “binder” idea where he has prepared all necessary financial and legal documents + passwords and accounts so that it is in one place should something happen to him. Thank you for sharing!
I saw J Money’s binder post right after I had written this. There must a be a subconscious force moving all personal finance writers in the same direction. One article on dying and finances come out, then 5 do. Though a binder is definitely sexier then a letter!