Broker Check

Single People Also Need to Protect Their Assets Summer

by Howard Hook, CFP®, CPA

As published in The Advisor, Summer 2011

Everybody, young and old, male and female, married and single, should plan for their financial future. For all of these groups, the questions are the same. Am I saving enough for retirement? Can I pay less in taxes? What would happen to my loved ones if I were to die or become disabled?

For single people, however, the answers may be more difficult to answer. Understanding the issues ahead of time and addressing them through the preparation of a flexible financial plan can help prevent unwanted consequences. Below are a couple of scenarios and how the decision-making process may differ.

Estate planning requires a high level of care and thought, whether you are married or single. In addition to having a will, it is recommended that you prepare a power of attorney, living will, and advance health directive document. These documents all name key people to represent you in the event that you are unable to manage your financial affairs or make your own health decisions, including end of life decisions. These are very powerful documents in that the people you name may literally hold your life in their hands. You want to be confident that they will carry out your wishes. Obviously, much care and thought needs to go into your selection.

Most of the time, spouses name each other as these representatives. It is natural and likely that your spouse should be the one making these decisions on your behalf. But what if you are not married? Who should you name – a close family member, such as a child or sibling, or perhaps a good friend? What if you don't have anyone that you trust? What then? Unfortunately, not knowing who to choose often results in people never executing these documents at all. This can create serious problems if you become disabled and unable to manage your own affairs. Even worse, by that point, there is not much that can be done to rectify the situation.

Another issue involves protecting your income and assets from a disability. For many people, the financial effect of a disability would be more devastating than dying. Knowing you have sufficient assets to support your loss of income goes a long way towards not having to worry about whether or not you could survive a long-term disability.

For married people, the loss of one income due to disability certainly may infringe on the family's ability to maintain their lifestyle. In some cases, however, the presence of a second income may reduce that stress considerably. As a single person, you do not have that advantage, and may not feel comfortable relying on family members or friends for financial support.

One possible solution is to buy a disability insurance policy. This can help bridge the gap between one's living expenses and the loss of income. Many employers offer disability policies to their employees at rates that are less than what a private disability policy would cost. Whether married or single, if you believe a loss of income due to disability would seriously impact your life, you should consider this type of insurance. Too often, people ignore this type of insurance due to the cost; however, once disabled, it will be too late to qualify

The above are just two examples of the planning issues that need to be considered differently depending on your marital status. These considerations are both financial in nature (what is my income shortfall if I become disabled?) and nonfinancial in nature (who should I name to manage my affairs if I become disabled?). In either case, delaying or putting off a decision can result in dire consequences to your personal situation.

The key to addressing these issues is to develop a comprehensive financial plan that will help you prepare for the unexpected. At a minimum, the plan should be two things:

  • First, it should be customized to your specific situation and needs.
  • Second, the plan should be flexible enough so that as your circumstances change, the plan can be amended as well. I have found that people are more open to implementing planning recommendations when they know the plans are flexible and can be changed as needed.

The best part of addressing your financial future is not having to worry about it and knowing you are better prepared to handle anything that may arise.