Regardless of your relationship status, wealth planning (sometimes referred to as "life planning") is an important undertaking, but it is particularly critical for single individuals who do not have children. The reason is simple: Singles often lack the type of safety net that others take for granted. They have neither a spouse nor adult children who can step up when necessary, and also typically lack a second individual contributing to household income and wealth accumulation during those pre-retirement years.
Despite these challenges, there are key strategies that single individuals should consider as they plan for retirement and beyond. Here are seven of the most important:
- Build an appropriate team. Not having a significant other or adult children greatly increases a single’s need for relationships with trusted friends, extended family, and professionals, for assistance with finances, medical decisions in the event of incapacity, and social contact. These include, but are not limited to, a financial planner, investment manager, attorney, insurance specialist, and tax specialist. A professional fiduciary, such as a trust officer, can also be an excellent resource.
- Create a smart, comprehensive plan … and follow it. In and of itself, building a team is not enough. Your team members have important roles to play in creating your wealth (life) plan and keeping it relevant through all stages of your life. To paraphrase Suze Orman: “Don’t let thoughtful financial planning take a back seat to daily life.”
- Don’t ignore disability income insurance. Income loss due to disability occurs far more frequently than is commonly understood, and it is particularly problematic for singles. Check out what might be available from your employer. In any event, replacing at least 80% of income is an appropriate minimum goal.
- Explore long-term care insurance. This type of insurance helps pay for expenses not otherwise covered by traditional health insurance, including Medicare, such as nursing home care, adult day care, and home health care. Although it can be expensive, choosing the right type of coverage for your circumstances and buying earlier than later are just two ways of keeping such policies affordable. Be sure work with an individual who specializes in this type of insurance.
- Diligently save for retirement … and then save more! Saving for retirement presents twin challenges for singles. As noted earlier, household wealth accumulation is generally more daunting, due to it being driven by one income earner rather than two. Additionally, post-retirement living expenses are generally greater than half of those for a couple. Solutions include maximizing 401(k) deferral opportunities, contributing to a Roth IRA beyond that (if eligible), and accumulating savings in taxable accounts to the extent your budget permits. And, oh yes … start early!
- Create an estate plan, and keep it up to date. As a wise, pun-inclined person once said, “Estate planning is not a dead issue.” In other words, estate planning presents important considerations during your lifetime, as well as after your death. Those lifetime considerations are particularly important for singles. Be sure that your plan includes some of the following documents, as appropriate for your situation: will, revocable living trust, financial power of attorney, health care power of attorney, living will, HIPAA authorization, beneficiary designation forms, and tangible personal property statement to name a few. As always, consult with an experienced attorney who specializes in estate planning to ensure that your plan is appropriate.
- Single business owners must address a set of additional needs. These include succession and business continuation plans that require consideration of, and coordination with, all of the preceding considerations. Business valuation also comes into play.
Conclusion: Navigating life as a single will become financially easier and more rewarding by deploying the seven strategies outlined above. If you’d like to learn more, contact an experienced Wealth Manager.