A Financial Planning Guide for Singles
No single person is an island when it comes to financial planning. Those who have been single lifelong, as well as those who find themselves single in the middle of their lives due to divorce or the death of a spouse, have a unique array of financial complications and considerations, financial advisors say. Here are four often-overlooked factors singles may want to consider in their retirement and estate planning.
Retirement planning is both simpler and harder for singles . On one hand, you can set your own priorities for lifestyle, travel and retirement activities, says Sharon Ellington, senior wealth planning strategist with the Dallas office of Wells Fargo. Married couples tend to challenge each other's assumptions to find a happy middle ground. For singles, however, it's easy to coast along a path set long ago for spending and saving priorities, Ellington says. "You can leave whatever legacy you want," she says.
On the other hand, you're also on your own to save for retirement.
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A single person may need 80 percent of a married couple's budget but has to accumulate that income on one salary -- and singles battle higher income tax rates along the way, says Howard Hook, a certified financial planner with EKS Associates in Princeton, New Jersey. "Your savings goals are higher as an individual," he says. "You're limited to saving less through a 401(k) than a two-income couple. So try to max out your 401(k) as much as you can, and save more on the side in an investment account."
Just because you don't have a spouse doesn't mean you don't have dependents. Relatives, such as an elderly parent, might depend on you for daily living expenses, Ellington points out. Or, you may have a partner. To ensure financial stability for dependents -- formal or informal -- name them as beneficiaries of your life insurance policy, Ellington says. Life insurance can also cover substantial expenses such as accrued income taxes, not to mention medical bills.
Also make sure to hard-wire financial and legal transfers to next of kin or loved ones through a will and related powers of attorney, Ellington adds. If your estate is substantial, consult with an expert, such as an estate attorney or certified public accountant, to see how you can minimize estate taxes.
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Name an advocate who can speak for you when you can't. Typically, a spouse is the default decision maker for someone who has become incapacitated, Hook explains. But a single person needs to designate both a power of attorney and a health care decision maker who can ensure that other documents, such as a medical directive, are integrated into critical and end-of-life treatments.
Hook's own family had to cope with this issue when his never-married aunt was injured in a car crash. Immediately, questions arose as to who would make medical decisions and manage her household and financial affairs during her long recuperation. "You have to have documents, such as a power of attorney, in place. If you don't, the courts will decide for you," Hook says.
For singles, Hook often recommends a "springing power of attorney" that goes into effect only when certain events take place, such as the single person becoming disabled or incapacitated. By contrast, a durable power of attorney goes into effect the moment it is signed.
The next step, Hook says, is to decide on the individual who will set the powers of attorney (legal and medical) into action when you can't. Often, a niece or nephew is a good choice, or a close friend who is a peer or younger.
But don't spring a springing power of attorney onto your next of kin, Hook says. "That person has to understand your wishes. Do you want to be kept alive or not? How do you feel about certain types of treatments?" he says. Review the scope of responsibilities in collaboration with that individual and make sure he or she knows exactly how to put them into action. "You don't want to surprise someone with these documents," Hook says. After all, they need to know when they have to step up.
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To streamline planning and communication, many people designate a single individual as executor, power of attorney and medical proxy, advisors say. That's also the individual who should have a living will or end-of-life directive to channel the single person's point of view to family, medical staff, business partners and others.
Ensure your executor or next of kin has cash and documents for winding up your estate. Tidying up even a well-planned estate takes time and money. Your next of kin or executor must have access to bank accounts and investments to pay off bills and debts in process at the time of death, says Tom Fisher, a fee-only financial planner and founder of Fisher Financial Strategies in Cambridge, Massachusetts.
An easy way to ensure cash flow is to make a trusted individual a co-signer on your bank accounts. "The settling of your estate becomes a responsibility for somebody," Fisher says. "Don't make it hard for them."
