A single woman wants the freedom to shape her own financial present and future. But with freedom comes responsibility. As a single person, the buck starts and stops with her.
“A financial plan is always a good thing, whether you’re married or not, and whether you have children or not. But it’s especially important for single people, and particularly for single women, because they tend to earn less money, and live longer, than men do, and they don’t have the resources of a partner to fall back on,” explains Leslie Beck, CFP®, founder of Compass Wealth Management in Maplewood, N.J.
That puts a premium on making wise financial choices. Here’s a look at 10 financial issues they’re likely to face, with expert suggestions on how to address them.
<strong>#1: Finding an ally.</strong> As self-reliant as a single woman may be, it’s often worth enlisting a financial planner to devise a comprehensive roadmap for reaching your financial goals.
<strong>#2: Getting your paperwork in order.</strong> Just as important as having a will is specifying (in legal documents) who will fill such important roles as power of attorney (to manage your financial and legal affairs if you can’t do so yourself) and healthcare proxy/agent/surrogate (to make health care/medical decisions for you if you lose the ability to make decisions yourself). You also need to establish an advanced healthcare directive to guide the healthcare proxy and healthcare providers with end-of-life decisions, etc. Be sure to file copies of these documents with your primary physician, the local hospital and your attorney, and to keep copies for yourself.
<strong>#3: Tracking money in and money out.</strong> Develop a spending plan so you know where you’re money is going and how much you can set aside for retirement, insurance premiums, etc.
<strong>#4: Building an emergency fund.</strong> The lack of a partner’s resources to fall back on puts a premium on having an emergency fund containing at least six months’ worth of expenses. To be sure those funds are readily accessible, Beck recommends keeping them in a money market or savings account, or in laddered CDs that come due every month.
<strong>#5: Saving and investing for retirement.</strong> “You need to pay yourself first,” said Beck. That means committing to allocating a certain amount each month for retirement. Take advantage of employer-based plans, especially if they have a matching contribution feature. If your employer doesn’t have a plan, or you’re self-employed, establish your own retirement plan with the help of a financial planner. Whatever the case, the approach should be the same, said Beck: “Start early, be aggressive and stay the course.”
<strong>#6: Ensuring enough income to last a lifetime.</strong> With longer life expectancy comes a greater need for retirement income planning. Talk to a financial planner about the tools available — annuities, retirement accounts, etc. — to ensure you won’t outlive your nest egg.
<strong>#7: Protecting your income with disability insurance.</strong> According to the Center for Retirement Research, singles are almost twice as likely as married adults to become severely disabled. What’s more, disability reduces a single person’s net worth by an average of 42%, compared to 16% for married people. Having short- and long-term disability insurance is therefore imperative for single women, said Beck.
<strong>#8: Protecting yourself and your nest egg with long term care insurance</strong>. Because singles are twice as likely to enter a nursing home, it’s especially important for them to consider long term care insurance, a form of insurance that covers the cost of in-home and nursing home care. Discuss options with a financial planner and consider purchasing a policy now, when good health and lower age can result in lower premiums.
<strong>#9: Making a will.</strong> By drawing up a will (with the help of an attorney), you’re making the decisions on who receives your assets when you die. Otherwise, those decisions likely will fall to the state, not the most desirable outcome.
<strong>#10: Leaving a legacy.</strong> One way for a single woman to leave her mark on the world is through support of charitable organizations and the like. Talk with a financial planner about charitable giving strategies and their potential tax benefits.
This column is provided by the Financial Planning Association® (FPA®), the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning.
Photo Credit: Colin Logan