When it comes to financial planning, we often talk about it in terms of the couples we work with and how we see their retirement plans change. They deal with aligning the goals, retirement timelines and deciding how they’ll budget and spend their income together. But what about all of the people we’ve helped over the years who aren’t coupled?
If you’re like them, you’ll face your own retirement and financial planning challenges. But, fear not, we’ve got a list of ways to help you get ahead on your financial plan for one.
Consider Using Tax-Deferred Savings Options
Tax brackets can be unkind to single earners. The way our the tax brackets are laid out, if you are an executive at a company making $180,000 and your colleague makes the exact same amount, but she is married and her husband does not work, you are paying tax at the 32% tax bracket while your married counterpart is paying at only the 24% bracket.
However, using tax-deferred savings vehicles to prepare for retirement can help you keep more of your money. In our earlier scenario, if you save $20,000 a year for retirement, by putting it into a traditional 401k where you can defer the tax until you withdraw the money, you get yourself beneath the $160,725 threshold for single tax-payers and again can pay tax at the 24% bracket.
Have an Emergency Savings Plan
When dealing with a married couple, if one spouse is out of work or has a medical emergency, their partner is usually able to pick up some of the slack financially. As a single person, more of that burden rests on your shoulders, so it’s important to be prepared for emergencies that could pop up.
We recommend saving between six and nine months of living expenses in a liquid account in case of employment loss, medical emergencies or urgent home repairs. Now, keep in mind that living expense aren’t the same as income. We’re talking about saving for items like the mortgage, utilities, gas and heat.
Create an Estate Plan
Estate planning isn’t just for the ultra-wealthy. While the federal estate exemption amount is sitting at $11.4 million in 2019, that’s not the only estate tax you need to think about. Depending on which state you live in, there is also state estate or state inheritance tax you have to deal with. And if that still doesn’t apply to you, there is still the task of divvying up your assets when you pass.
This is especially important for singles as the inheritance process for your heirs may be more complicated than if you had a surviving spouse. Be sure to keep your beneficiary designations on all of your accounts up to date so that you know that your assets are going to the people you want them to.
This is also an important piece for single parents of younger children. Your estate plan should include instructions for who you want to take care of your minor children if anything were to happen to you. Be sure to discuss that responsibility with the named caregivers before naming them as well.
Financial planning should leave you feeling empowered about the future you’re creating for yourself. Take these steps today to start moving in the right direction today.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Bruce Helmer, a founding member of Wealth Enhancement Group, has been the host of the “Your Money” Radio Show for more than 20 years. He is also featured weekly on the Twin Cities CBS affiliate WCCO, and has penned three financial advice publications.