Case Study - Rebuilding Financial Confidence After the Loss of a Spouse.

Over almost 15 years as an Investment Adviser, some of the most meaningful work I have done has involved helping clients after the death of a spouse. At a time of grief, a surviving partner may suddenly become responsible for investments, insurance proceeds, estate matters, household finances and decisions that were previously managed together.

The immediate need is rarely to make significant investment changes. The first priority is usually to create stability, clarity and confidence.  

The client situation

In this case, a client’s husband had passed away. The couple had previously made financial decisions jointly, although her husband had taken primary responsibility for many of the investment arrangements.

The client was now dealing with grief while also trying to understand the family’s investments, KiwiSaver, cash, insurance proceeds and future income requirements. The existing portfolio had been designed for a couple. It reflected their combined income needs, their shared tolerance for risk and their long-term plans. The strategy now needed to be reviewed around one person’s circumstances.

Identifying information, figures and some circumstances have been changed to preserve confidentiality.

What mattered most 

The client wanted to:

• understand what she owned
• know how her regular income would be funded
• simplify the financial arrangements
• retain sufficient cash for immediate expenses
• reduce investment risks she was no longer comfortable accepting
• preserve enough growth to support a long retirement
• know that someone was available to help when decisions arose 

The client did not want to become an investment expert. She wanted to understand the strategy, feel comfortable with it and know that her future had been considered. 

Our approach 

We began by bringing all of the financial information together. We identified immediate cash requirements, estate related expenses, expected income and the capital that would be available once the estate was completed.

No major decisions were rushed. Once the position became clearer, we reviewed the investment portfolio in the context of the client’s personal circumstances. Simply moving everything into cash would have reduced short term volatility, but it may also have increased inflation and longevity risk. 

A retirement lasting many years still requires some exposure to growth. We therefore used a three-bucket approach. The short-term bucket provided cash for regular drawings and foreseeable expenses. The medium-term bucket was invested more conservatively and could replenish the cash allocation when appropriate. The long-term bucket remained invested in diversified growth assets because that capital was not expected to be required for many years.

We also considered the three phases of retirement. During the active years, spending may be higher because travel, family and experiences remain important. During the slower years, discretionary expenditure may reduce. During the support and healthcare years, different costs may arise, including home support, healthcare or aged care.

Our investment philosophy in practice 

Reducing risk does not always mean holding less growth.
Risk also includes:

• inflation reducing purchasing power
• living longer than expected
• relying on a single source of income
• being forced to sell investments during a downturn
• not retaining enough capital for future healthcare
• becoming too afraid to spend 

The three-bucket strategy helped separate the client’s immediate income needs from the capital required for her longer-term future. Guidelines were introduced around cash reserves, annual drawings, portfolio values and circumstances that would require a review. 

The outcome 

The client gained clarity about her financial position and how her future income would be provided. The strategy became simpler, the level of risk was adjusted, and the client knew why each part of the portfolio was held. 

Most importantly, she no longer felt that every financial decision needed to be faced alone. 

What I have learned 

Financial advice after the loss of a spouse requires patience. It is not simply an investment review. It involves helping someone regain confidence at a time when their life has changed significantly.

The best initial decision may be to avoid making unnecessary decisions until the client has had time to understand their position. Once the immediate pressure has eased, the strategy can be rebuilt around the surviving spouse’s needs, goals and comfort.

At Yovich & Co, we place the client at the centre of every decision and provide support for the journey ahead.

Jarrod Goodall
FSP198885