Financial Planning Guidance for Singles - Finally Darren L. Zagarola, CFP®, CPA, PFS As published on Princeton.Patch.com, March 26, 2013 Singles are the most ignored group when it comes to financial planning guidance. Most financial planning and advice columns address issues and provide financial planning solutions for married people, and are as useful to a single person as a screen door on a submarine. The problem is that single people have different planning issues. I'd like to address several of these issues here. First, a quick review of financial planning similarities between the single and the married: Calculating one's financial need: Financial need here is defined as how much is required from your investment portfolio to supplement your income. Income primarily consists of salary/earnings, social security retirement benefits, pension benefits and/or distributions from retirement plans. Need is then calculated by subtracting your living expenses and income tax to determine whether there is a cash-flow surplus or a deficit. A surplus should be added to an investment portfolio to provide for future deficits. A deficit means funds from a portfolio are required to meet living expenses.Estate plan: Whether married or single, everyone should have a Will, Power of Attorney and Living Will/Advance Medical Directive.Investment plan: Everyone should have an investment plan, which includes a long-term asset allocation goal and an investment policy statement detailing the important parameters of the portfolio.Insurance: Everyone should have home owner/renters insurance, auto insurance, excess liability insurance and medical insurance.Tax planning: As the old saying goes, you can't avoid death or paying taxes. But you can develop a plan to minimize those taxes. Next, let's consider the very important planning issues for which a single person must be prepared. Retirement planning options. Married individuals often have more options when choosing their pension payment. Their choices can be single life, joint and survivor – which calculates the payment over two life expectancies and does not stop at the pensioner's death, or a “period certain” allocation – which guarantees payments over a certain period of time. For a single person, the pension options are more restrictive and may not offer the choice of receiving payments over two lives. The decision to be made is whether the single person wants the largest payment over their lifetime (not caring if they don't receive what they have earned), or whether they would like someone to continue to receive benefits after their death (parent, sibling, niece/nephew). Most companies or institutions now include domestic partners under their options. Life Insurance. The need for life insurance is a topic most frequently asked when we meet with single clients. It is often assumed that life insurance is not needed because they are single. Well, that depends on the individual and their goals. They might want to leave a legacy to future children or nieces/nephews. They might want to provide for domestic partners or family members without having to worry about whether the estate tax will erode their legacy. They might have a home they share with a partner or relative that has a mortgage, and life insurance would provide for the repayment of the mortgage and not force their relative to have to sell the property. Disability insurance. Probably one of the most overlooked insurance products when discussing financial planning is disability insurance. This insurance provides income protection for individuals who become disabled for a long period of time. Disability can mean higher medical costs, custodial costs and loss of income. While a married couple may have a second income earner to fall back on, a single person may not have a financial network of family to provide such support. Therefore, the need for disability insurance is vital to vthe success of a single person's financial plan. Although most employers offer group disability plans, which have a lower cost, they are only beneficial to the individual if still employed at the time of disability. We recommend obtaining private, long-term disability insurance to replace at least 50-60 percent of income, which can be expensive. Long-term care insurance. While disability insurance provides for income replacement, long-term care insurance provides custodial care for those that are unable to perform the basic activities of daily living, such as dressing, bathing, eating, toileting, transferring and care for incontinence. An important distinction between long-term care and medical insurance is that long-term care is custodial care – not medical care and thus the cost of care is not covered under your medical insurance policy. This type of insurance is very important for a single person, as it provides them the comfort of controlling how and where they are to be cared for. Having a written plan that explains how, where and by whom you would like to be cared for also removes a burden to loved ones who might have to guess how you would like to be cared for. Estate planning. An estate plan consists of three main documents: Will, Power of Attorney, and Living Will/Advanced Medical Directive. Everyone needs these documents, whether married or single. By default, everyone in the State of New Jersey has a Will. The State will determine who receives your assets at your death if you do not have a Will, forcing your family to spend time and money fighting with the State to see that your final wishes are met. Even then, don't assume family members will know who should receive your assets. A primary and successor executor to act on behalf of your estate will need to be named. If you include a Trust in your estate (for a minor or a charity) you will need to name a Trustee as well. The same holds true for the Power of Attorney and Living Will/Advance Medical Directive – as you should name a person to act on your behalf if you were to become incapacitated or require medical attention. These are not easy decisions. Should it be a parent or sibling? Possibly a close friend? Think about who you trust with your care and personal details. We have not even discussed the estate tax penalty a single person faces. The current federal estate tax exemption is $10 million for a married couple. However, it's important to remember that the State of New Jersey exemption is just $675,000 for an individual, and planning should be done to minimize the tax bite for funds over that amount. As you can see, there are many very important planning issues facing single people that are often overlooked. In a future posting, I plan to address income tax issues for singles, which hasn't been discussed here. Being single is not a good reason to ignore financial planning. And it certainly is not a good reason for you to lack solid guidance when you need to discuss these important financial planning topics.