Financial Planning Strategies and Considerations for Single and Divorced People
The 2017 U.S. Census reported that 110 million people — 45 percent of the American adult population — are unmarried. Which means there are more single adults in the U.S. right now than at any other time in the country’s history.
While the fundamentals for financial success are largely the same whether you’re unattached or part of a couple, single people would do well to pay attention to certain aspects of their financial picture, since they’re probably reliant on a single income and solely responsible for managing their finances.
With a good plan and a little discipline, single people can be just as financially successful — or more — as any couple. Here are eight tips to help those who don’t have a partner or are dealing with divorce.
1. Savings: As a single person, your first priority, after covering living expenses and other financial obligations, should be setting aside a good-sized cash cushion to protect you from the kinds of minor problems that can turn into major money pits. With only a single income to lean on, be sure to look at the total cost of any major life changes to avoid a financial disaster. For example, you don’t just need to be able to afford a home; you need to maintain it, insure it, and tend to the lawn, heating, cooling and plumbing as well. Experts typically recommend keeping at least six months’ worth of living expenses in a savings account and as much as two years’ worth of cash on hand in retirement, but you may want to save a little more if you’re pursuing any major financial milestones in the near future. Set up a dedicated savings account and make regular deposits.
2. Credit: Protecting and/or rebuilding your credit if you’ve had personal setbacks is another key to being an independent single person, so that you can borrow in emergencies or qualify on your own to buy a new car, a home or another major purchase. A good credit score also means you’re likely to pay less for insurance, qualify to rent an apartment, and pay lower interest rates on credit cards and other loans. You can find several online sources to check your credit for free, and many credit card providers or banks will also help you access your score.
3. Stay in control: If you’re single because of divorce or the death of a spouse, make sure all your paperwork is in order, including mortgages, bank and investment accounts, wills, powers of attorney, and other legal documents. Check all your insurance policies and bank and retirement accounts to make sure your beneficiaries are up to date and reflect your final wishes. Besides a will, a health care directive, and a durable power of attorney, you may want to look into an estate plan, since divorce decrees, substantial asset distribution, charitable donations and other factors can complicate your legacy.
4. Get a team: A financial advisor, insurance agent, attorney and tax preparer are good resources to consider for planning your future. Get recommendations from friends, interview at least three candidates for each role, and check professional backgrounds to build a team you can trust. Learn more about finding a financial advisor.
5. Protect yourself: If you’re still working, a disabling injury can seriously damage or even destroy your finances. According to the Social Security Administration, more than one in four 20-year-olds will experience a disability before they reach retirement age.1 You may have access to some coverage at work, or you may obtain your own policy, which allows you to choose your level of coverage, maintain the policy when you change jobs, and receive any payouts tax-free. You may also want to consider long-term care coverage for your later years. The current cost of a private room in a nursing home is $102,000 a year,2 and one out of three Americans turning 65 this year will need long-term care — with an average of 2.2 years of care for men and 3.5 years for women.
6. Life insurance: Regardless of whether or not you have other people depending on your income, you may want to consider the role life insurance can play in your overall financial strategy. Insurance can not only cover your end-of-life expenses and pay off any debts, it can be used to retire a mortgage so you can pass your house to someone or provide a benefit to friends, relatives, schools or charitable causes. Even if you don’t have a spouse or children now, life insurance can be less expensive to purchase when you’re younger, giving you significant savings. Finally, some policies allow you to accelerate the benefits to pay for medical costs and expenses in case of a major injury or serious illness.
7. Retirement: One key to a comfortable retirement is to start saving early and on a regular basis so that time is on your side, giving your investments the opportunity to compound and grow — and that’s especially true for single people. First, if possible, try to save enough to get any employer match from a 401(k) or similar workplace plan, if that’s offered. After that, consider either an individual retirement account or a Roth IRA, which allows you to withdraw your contributions in an emergency. A financial advisor can help customize a retirement savings strategy unique to your situation and goals. You can also consider adding annuities and life insurance to provide additional sources of retirement income.
8. Social Security: There are a lot of Social Security income-claiming strategies to consider, especially if you have lost a spouse or were married for at least 10 years. You may be eligible to claim a portion of your spouse’s or ex-spouse’s benefit, which involves a little more planning and a few more decisions. A financial advisor or your Social Security office can help you review your options.
Whether you’re single or married, reaching your financial goals involves the same fundamental practices. It just takes planning, saving and setting your priorities. Starting early, examining all the phases of your life, and seeking financial advice from someone you trust can make all the difference.
Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.
Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.