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How Do I Financial Plan, When It’s Only Me?

When it comes to financial planning, we often talk 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. However, what about all of the people we’ve helped over the years who aren’t coupled?

If you’re single, you’ll face your own retirement and financial planning challenges. However, the Twin Cities Pioneer Press’ recently published an article titled “Financial planning for one” that provides a list of ways to help get ahead on a financial plan for one.

Tax-Deferred Savings Options. Tax brackets can be a bit hard on single earners. For example, if you’re the CEO at a company making $180,000 and your friend makes the exact same amount. If she’s married and her husband doesn’t work, you pay tax at the 32% tax bracket, and she pays at the 24% bracket. Leveraging tax-deferred savings vehicles to prepare for retirement can help you keep more of your money. As the CEO, if you save $20,000 a year for retirement and put it in a traditional 401(k), where you can defer the tax until you withdraw the money, you’ll get under the $160,725 threshold for single tax-payers and can pay tax at the 24% bracket.

Emergency Savings Plan. With a married couple, if one spouse is out of work or has a medical emergency, their spouse can usually pick up some of the slack financially. As a single person, that burden rests solely on your shoulders, so it’s important to be prepared for possible emergencies. You should save between six and nine months of living expenses in a liquid account, in case of employment loss, medical emergencies or urgent home repairs.

Estate Plan. Estate planning isn’t just for the ultra-wealthy, or even just regular wealthy individuals. Depending on where you live, you may also be subject to a state estate or state inheritance tax.  Even if that doesn’t apply to you, you still need a will to distribute your assets when you pass away. This is especially crucial for singles, because the inheritance process for your heirs may be more complicated, than if you have a surviving spouse. Keep your beneficiary designations on all of your accounts up to date, so you know that your assets are going to the people you intend.

In addition, if you’re a single parent 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. Talk over that responsibility with the designated caregivers, before naming them.

Reference: Twin Cities Pioneer Press (March 23, 2019) “Financial planning for one”

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