45% of households nationwide are maintained by a single person and being single affects many areas of financial planning.
Single people face unique challenges when it comes to financial planning. It is important to consider retirement planning, parenthood, insurance, health care planning, and housing issues when managing your finances at all stages of life.
Living the single life no longer is an anomaly: According to the U.S. Census Bureau, 45% of households nationwide are maintained by a single person. Being single affects many areas of financial planning, including retirement, financing health care later in life, and other key issues.
If you are single, recently widowed, or expect to become single as a result of a pending divorce, consider the following as you plan your finances.
An increasing percentage of pre-retirees are planning for retirement on their own. What steps should solo planners take to shore up their finances for a comfortable retirement?
• Set long-term retirement savings goals. If you have access to an employer-sponsored retirement plan, contribute as much as you can afford. For 2012, the maximum employee contribution is $17,000, and workers aged 50 and older can contribute an additional $5,000 catch-up contribution. The maximum contribution goes up a bit in 2013 to $17,500.
• Consider funding an IRA. For 2012, the maximum contribution is $5,000, and investors aged 50 and older can contribute an additional $1,000.
• Invest as much as you can. Investing as much as you can afford for retirement over the long term is beneficial because you will not have the luxury of falling back on a partner’s pension. In addition, your household will have one Social Security check to fund retirement expenses.
• Fund for your children, but don’t forget yourself. If you have children, your financial planning could be especially challenging because you may be required to fund tuition, child care, and other costs on one salary. As you raise your family, be sure not to shortchange your needs. Put away something for retirement, even if it is only a small amount each week. Over time, this amount may compound and serve as the basis of your retirement nest egg. Be sure to appoint a guardian for your children in the event that you are not able to care for them.
Insurance and Health Care
• Review your options for disability insurance and long-term care insurance. It is critical to purchase these types of insurance while you are healthy and the premiums are affordable. These insurance purchases increase the chances that you will have adequate cash flow if you are not able to work because of a disability, or if you require assistance with activities of daily living later in life.
• Prepare for health care expenses. You may need to direct a lawyer to draft a health care proxy in which you designate a loved one to make medical decisions on your behalf if you are not able to do so yourself.
• Think carefully about the type of housing situation that suits your needs. Carrying a single-family home, especially in an expensive housing market, frequently is difficult on one income. Be sure that your home is affordable enough to permit you to invest for retirement and other financial goals.