If you are single (or recently single) in your prime earning years, you have planning needs that will differ from the needs of a married couple, especially if children or dependents are involved. Financial planning should be done with your specific situation in mind instead of taking a general approach. First, let’s discuss the areas of a financial plan that we cover when working with any client:
- Cash Flow / Budgeting / Debt Management
- Tax Planning
- Insurance
- Retirement
- Employee Benefits
- Investments
- Estate Planning
These are all great and valuable topics but there are a few areas where your needs will differ from those of a married couple. Let’s review a few areas that tend to differ in a single individual’s plan.
1. Retirement Planning
Retirement planning is a necessity for all clients, but single individuals face unique challenges. The biggest one is being solely responsible for your own savings and investments. Careful planning and a strong savings discipline is vital to ensure that you can be sufficiently taken care of when you’re older.
To ensure you can live a comfortable lifestyle in retirement, you must get a handle on:
Budgeting
Develop a detailed budget that allows you to sufficiently save for your future goals while balancing your needs (and wants) today. If you’re not good at budgeting, one of my favorite budgeting tools is Monarch Money.
Emergency Fund
Maintaining a robust emergency fund is essential. Because you’re relying on yourself you need to be able to cover unexpected expenses such as medical bills or major home repairs without derailing your retirement plans.
Income Streams
It’s important to ensure there are multiple sources of income in retirement. This can include Social Security, pensions, annuities, side hustles (mailbox money), and investment income. By diversifying your income sources you are providing yourself more stability and reducing overall risk.
Retirement Expectations
The success of your retirement comes down to your withdrawal needs in retirement. Are you going to live a modest retirement where you stay home and read a lot of books or are you planning to travel the world? Depending on your needs will drive how much you need to be saving today in order to stay on track for your goals.
2. Insurance
We typically use insurance as a tool to make you whole during a catastrophic event such as a disability or when a tree falls on your roof. Whether you are replacing lost income or having to pay a large home repair bill, insurance is one area where you need to be more thoughtful in what your exposure to risk actually is. If you’re single with no dependents you may not need something like life insurance, however, if you have children then life insurance makes perfect sense and in most cases is essential.
To make sure you’re protected, a single individual will want to consider these types of insurance coverages:
Disability Insurance
Many employers will provide you short-term and long-term disability coverage which will replace your income if you cannot work due to an illness or injury. It’s important to note that these policies typically only cover up to 60% of your income. If you have dependents that you care for or if you find that you need more coverage, consider getting a personal disability policy in place to replace your income.
Life Insurance
The big consideration here is whether you have others relying on your income. If you have a mortgage, other debts, children, or a parent you’re caring for you will want to have enough life insurance in place to pay off your debts as well as enough to cover your income for a specified number of years. It really depends on what or who you want to be taken care of when you are no longer here to do so.
Long-Term Care (LTC) Insurance
This is especially important to consider as a single-person may have no one to depend on in those later years. LTC insurance helps cover the costs of long-term care services, which are typically not covered by regular health insurance or Medicare. These include services in various settings, such as home care, assisted living facilities, and nursing homes.
3. Estate Planning
It’s important to note that not every person who is single throughout retirement and old age will want to leave any assets behind. But that is why it is so important to think about what is important to you and how you want to spend your money in retirement. Do you want to die with $0 essentially “going for broke?” Do you want to leave a set amount aside to a charity? Do you have dependents that you would like to leave a legacy for?
Let’s say you have a legacy that you want to leave to other people or organizations. While the creation of wills and trusts will be the same for all people, there should be a special emphasis on your health and cognitive abilities as you age. Having a trust with a durable power of attorney and healthcare proxy is important for today as well as in the future. This will potentially fund you and take care of you in your elder years. It’s important to understand your personal values and from there you can set up an appropriate estate plan.
A Will
Specifying beneficiaries and guardianship for your children is crucial to ensure your wishes are followed.
Durable Power of Attorney
This allows a designated person to manage your finances if you were to become incapacitated.
Health Care Proxy
This appoints someone to make medical decisions on your behalf if you are unable to do so.
Advance Healthcare Directive
Specifies your wishes regarding medical treatment and care if you are unable to communicate your decisions.
Living Will
Similar to an advance directive, a living will provides specific instructions about healthcare decisions, particularly end-of-life care.
Living Trust
This can help manage your assets during your lifetime and distribute them after your death, potentially avoiding probate.
Conclusion
Navigating your peak earning years requires proactive financial planning to achieve long-term financial security and support your personal aspirations. At Beyond Balanced Financial Planning, we specialize in guiding high-earning individuals through personalized financial strategies. Contact us today to discuss how we can help you optimize your financial plan and pursue your goals with confidence.
