(Source: Forbes) By Judith Ward
I provide a lot of general financial planning guidance, usually for families. But recently a friend asked, “I’m single, do I need to do anything differently with my finances? What advice do you have for me?”
Much of my advice on this topic isn’t that different from what I would offer to married couples, but here are a few tips to consider especially if you are on your own.
- Save for retirement now. Many of us will be relying on Social Security benefits and our own personal savings in retirement. We may have pension income and potentially continue to work past traditional retirement age, in some capacity. Regardless of our exact path, a good retirement savings target is 15% of your salary — including any employer match if available — in your 401(k) plan. If you don’t have a plan through work, consider an IRA
- Be prepared for emergencies. Since you don’t have the benefit of another income to fall back on, build up an emergency fund that can cover three to six months of expenses. Singles should lean towards more of a six-month cushion so unexpected expenses can be paid off without having to tap credit cards or raid retirement savings. Keep the money in an account where it can be easily accessed.
- Explore insurance options. Life insurance primarily serves as replacement income for those who depend on you. If you have no dependents, then it may not be necessary (or consider a nominal amount to cover funeral expenses). If you have children you are financially responsible for, life insurance is extremely important. An often overlooked insurance need is disability insurance. It may be particularly important for singles as you don’t have access to a spouse’s income or care. Most policies will replace around 60% of your salary. Your employer may provide life and disability insurance, and you may elect for more coverage at very little extra cost under these group plans. Consider, though, that these benefits will end if you leave your job. You still may decide to purchase additional coverage depending on your needs.
- Get your estate and affairs in order. Having financial independence is important, but there are times you may need to depend on others. You may not think you need an estate plan as a single individual, but what if you become incapacitated? Whom do you trust to make health and financial decisions on your behalf? A health care proxy (also known as a durable medical power of attorney), an advance health care directive, and a durable power of attorney for financial and legal matters are critical documents to consider. If you are single and have minor children, a will is the way to appoint a guardian who can care for them. Your will can also state your other wishes and property distribution.
- Have a plan for your assets. If single, it’s likely most of your assets are in your own name, so it’s important your beneficiary information is current. Outside your will, beneficiary designations on your retirement accounts and life insurance policy dictate how those assets will be distributed. You may be able to title other accounts to “transfer on death” for a smooth transition as well. If you do not make these designations, or have a will in place for other kinds of accounts, the state will do it for you. That’s probably not the end result you would want.
Make the time to prioritize a financial and estate plan and review it regularly. Share with trusted family members and friends to provide peace of mind for both you and your loved ones.