Financial Planning in the Single Income Household

Financial Planning for Singles

The independence and freedom of being single is great, but it does require careful planning when you’re the solo wage earner.

Financial Planning in the Single Income Household

For years, Gary Snow’s income tax deductions left him scratching his head. “I worked two jobs, and at the end of the year when I did my taxes, I wondered where all the money went,” he said.

Snow was unmarried, and didn’t have children or own a house, leaving him without any major tax write-offs, a green light for the IRS to keep a chunk of his earnings.

“But I wanted to save money, so I’ll have something for the future,” he said.

In order to do that, Snow sought the help of a financial adviser, who created a plan tailored to the needs and financial goals of a single adult. And 26 years later and with no change in his marital status, Snow is retired and financially stable.

“The secret is long-term planning,” said Snow, 62. “It’s just like a security blanket; it’s really good to know that it’s there when you need it. It’s especially important when you don’t have a wife or a partner.”

As Americans’ overall marital status continues to move toward more single adults, many people will be planning their financial futures without another wage-earner in the picture. And in Buffalo, NY, where it is estimated almost 60 percent of households are headed by single people without children, that picture is more of a reality. Forty percent of those people actually live alone.

“More and more people are delaying marriage, and that creates a high percentage of unmarried people in their 20s, 30s and so forth, and an increase of unmarried cohabitation,” said Thomas F. Coleman, executive director of the American Association of Single People. “And we’re living longer, and toward the end of life there’s a higher percentage of unmarried people due to the loss of spouses through death. On average, we spend more years of our lives unmarried than married. So you may not be in the single category now, but chances are you will be again, whether through divorce or the loss of a spouse.”

“On average, we spend more years of our lives unmarried than married. So you may not be in the single category now, but chances are you will be again …” – Thomas F. Coleman

If you are single, retirement investing in 401(k)s and Roth IRAs is much the same as for married, but experts say there are some financial planning areas where those interests diverge.

While married couples may factor in funding their children’s education and life insurance costs, for single adults without dependents, the emphasis is more on insuring their own care and lifestyle. They need to consider supplemental disability and long-term care insurance when creating a financial plan.

“Being a single person, you don’t have another person (as financial backup),” said Bill Deacon, vice president of Harold C. Brown & Co., a financial planning and investment firm. “You’re the show; there’s not a second income. The need for life insurance is significantly less,” he said, while emphasizing the importance of personal disability coverage. “Your greatest asset is your ability to go to work every day.”

Pay now, play later

Coleman said: “In a way, a single person is their own dependent. And what you put into your future is what you are going to get out of it. Play now and pay later, or pay now and play later. You have to realize that you’re the one taking care of yourself in the future.”

Six months to a year’s income in savings is still advised, but in cases of long-term health problems, supplemental disability, offered at work or by a private company, will keep you above water.

“Short-term disability can run out, then you could eliminate your savings, if you have a savings account, forcing you to tap into your retirement savings,” Coleman said. “So take a look at getting a good disability plan.”

Back in ’86, Anthony Baldi, Snow’s financial adviser, told him that disability insurance and long-term care insurance were critical, but Snow bought them reluctantly.

“When you’re in your 30s, you don’t think about needing those things, being sick for a long period of time or having to go to a nursing home,” he said. “But he explained how it could help me in the future.”

And it did. When Snow was 50 he had a stroke, and couldn’t work for weeks. At 56, he had a foot amputated, and left his job for almost a year to recover.

“The disability really helped me a lot,” he said. “I got $1,000 a month.”

Baldi said long-term care insurance will pay for the care unmarried people may need as they age and they don’t have adult offspring to help them or other means to pay for care.

Baldi said Roth IRAs are a good way to supplement your taxable income with tax-free income, and it would be wise to invest in one.

Also, experts highly encouraged homeownership for singles, if they can afford it, as a way to decrease their tax bite. “If you’re lacking a lot of write-offs, then it’s a definite must,” Coleman said. “Home (mortgage) interest is a tremendous write-off. And it’s such a huge investment over time.”

Experts highly encouraged homeownership for singles, if they can afford it, as a way to decrease their tax bite.

But it tends to be more challenging landing a home loan as a single adult, experts point out.

“It’s definitely harder getting a loan at a lower rate when you are single with just the one income,” Coleman said. “Most married couples are dual-earner families, which usually give them more disposable income.”

It can also be more costly for singles to buy car insurance.

“Not all companies charge higher rates, so shop around,” Coleman said. “But some are even charging higher rates for divorced or widowed people. There are some that don’t have a marital status surcharge; it really pays to compare.

Deacon also said single adults, without an immediate family, may not realize how important it is to have a will.

“Certainly we accumulate a lot in this life — like your home, cars, bank accounts—and you want them to go somewhere when you’re gone,” Deacon said. “If you don’t draft a will, the state will decide where (your assets) will go, so name beneficiaries — a family member, friend, charities.”

Four years ago, Mary Lou Letina, 28, took the advice of her father and met with a financial adviser from Primerica. Letina was then, as she is now, unmarried and childless. Her job didn’t offer a 401(k), and she wanted to start investing for her retirement.

“I wanted to figure out how much savings I should have,” she said. “And I wanted to pay off my student loans sooner.”

She now has two Roth IRAs and a money market account. Letina cleared her debt from college and is saving to buy her first home.

“I’m not worried right now,” she said. “I should be set for retirement.”

This article originally appeared in The Buffalo News.

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