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Saving for Retirement

Doing It All on Your Own

Raising children alone puts you on a financial tightrope without a safety net.

Seeing your teenager pull out of the driveway for the first time might make you shudder. But it seemed like a miracle to Katherine Engel. A single parent since 2003, the 43-year-old Tucson, Ariz., woman spent several hectic years playing chauffeur to daughters Anya, now 17, and Anastasia, 15. After Anya scored her license last fall, Engel scraped together the money to buy a second car, a 2000 Saturn. "Now the girls go everywhere, and I don't have to worry about their schedules," she says.

Like the 13 million other parents who raise kids on their own, Engel wouldn't mind a few more miracles like this -- say, limitless time and energy and the ability to do ten things at once. "Single parents work, come home, supervise homework, try to get the house together and are back at it the next day," says Kathleen Soucy, of Parents Without Partners. "They spend weekends shopping and running errands. There's a lot of stress."


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Add money to the list of worries. Single women, by far the majority of single-parent households, earn an average of $26,500 a year. Child support, for the 45% of custodial parents who receive the full amount, averages about $5,800 a year. Raising a family on such modest means can feel like teetering over a precipice, says Jeffrey Mehler, a financial planner in Centerbrook, Conn. Even solo parents who are more affluent sometimes feel their situation is precarious. "There's this fear because the first level of safety -- the other parent -- isn't there," says Mehler.

Find secure housing

Engel, a native Russian, has more reason than most to feel as if she's on her own. Her first husband, the girls' father, remains in Russia. She met her second husband in Tucson while participating in a teaching exchange program. When that marriage foundered about three years ago, she agreed to move out with the children.


Finding an affordable place for a family of three wasn't easy. Although Engel receives neither child support nor alimony, she did get a $30,000 divorce settlement. When she discovered a new housing development with homes advertised for $140,000, she used her settlement as a down payment and grabbed one. Now, she says, she is "ecstatic" to be settled in the modest, three-bedroom home, which borders a sidewalk punctuated by mesquite saplings. Engel has planted two more trees in her backyard in anticipation of hanging a hammock someday.

Engel had one advantage over many solo moms: She and the kids had no special attachment to her husband's house. Many single parents, especially women, try to keep the family home for the children's sake, says Soucy, even if that means stretching to make the mortgage or signing away their share of a pension. Better to downsize than to jeopardize your future, she says. "Keeping the house isn't the be-all and the end-all."

Another solution to the housing dilemma can be to find a roommate. When Marian Morley of Olney, Md., divorced in 1982, she and her young daughter moved in with a friend who was also a single mother. "We knew each other from day care," she says. "The kids got along great. It was the best living arrangement I ever had." The deal was so successful that it self-destructed: Within a year, Morley had saved enough money to buy her own house.

Secure your income

Wherever you end up living, you're well advised to concentrate on your biggest asset: earning potential. "With no backup, your ability to make money is that much more critical," says financial planner Sheryl Garrett, of the Garrett Planning Network. "If hiring a babysitter and taking an extra class enables you to earn an extra $5,000 a year over the course of your career, that one evening a week is definitely a worthwhile investment."


When you're the breadwinner, you have all the more reason to protect your income against disaster. Most experts recommend carrying life insurance equal to six to ten times your salary. A healthy man or woman at age 45 can pick up $500,000 in term-life insurance for as little as $450 to $600 a year. "That provides an awful lot of security for you and your kids," says Garrett.

As for anticipating the disaster that doesn't kill you, no matter how much disability insurance you've got through your employer, you will likely need more, says Garrett. "The goal is to replace as much income as you can." Employer-paid disability coverage typically replaces 60% to 70% of pretax income; you may be able to pick up an individual policy that replaces another 20% and is tax-free. For instance, a 45-year-old professional man earning $60,000 a year might replace $2,250 a month after taxes through his employer. Then he could pick up another $1,000 a month (nontaxable), with a 90-day waiting period before payments begin, for about $850 a year. Individual premiums are usually higher for women, who tend to live longer. A 45-year-old woman in the same circumstances would pay $1,250 a year for the extra coverage.

Parcel out your pay

Engel, who teaches immersion English to young immigrants at Amphitheater High School, enjoys her job as usher to a new culture. But with a salary of $40,000 a year, she doesn't expect to get rich from it. She boosts her income by taking in-service training and by tutoring students preparing for the state competency test. Partly as a lark, she also spent a few weekends as a "mystery shopper," checking out local business services and wares for $7 an hour.

Even with all that scrambling, her income is mostly spent on the basics -- mortgage payments, groceries, utility bills and out-of-pocket medical expenses. Engel's health insurance, which includes vision and dental benefits, costs $230 a month and carries an annual deductible of $4,000 a head (up to a total of $8,000). She contributes pretax dollars to an employer-sponsored flexible spending account, which reimburses her for some of her health-care expenses.


For families with similar constraints, a budget becomes "hugely important," says Mehler. He encourages single parents to track expenses on a spreadsheet and to allocate the first spare dollars to an emergency stash. Retirement savings is the next priority, Mehler says -- "Mom or Dad should be looking out for Mom or Dad" -- and college savings comes in a distant third. That's because single parents with modest incomes and no other support can probably expect financial aid for their kids' education. Engel hopes Anya will attend the University of Arizona, from which the high school junior has secured free tuition for the first year by surpassing state competency standards.

In the meantime, Engel isn't afraid to enlist the kids as contributors to the common good. She pays the insurance on both cars but lets Anya, who works part-time at Hallmark, buy gas for the Saturn. The girls use cell phones on Mom's dime -- "I needed to have a way to stay in contact," she says -- but they make do with the car radio rather than iPods. Engel buys the essential clothing; Anya handles the fashion upgrades. Anastasia, known as Nastya, is the rare teenager who forgoes the mall altogether. "Shopping is not my favorite thing," she says.

Absent from this family's budget ledger? Big credit-card bills. "I get mad at myself if I have debt," says Engel, who uses plastic but avoids carrying a balance. Better yet, says Garrett, stick with cash. She recommends the cash-in-envelopes system for keeping a budget honest. "The end of that cash is the ultimate stopping point," she says. "Credit cards, and even checks, don't have that tangible feel."

Scout for tax breaks

Engel has one surprising ally in her efforts to make ends meet: the IRS. "Most single parents I've worked with do not have much of a tax issue," says Garrett. Parents who file as head of household, for instance, usually pay a lower tax rate and are entitled to a higher standard deduction than single taxpayers and married couples filing separately. Parents may also be able to take a $3,200 exemption for each qualifying child, plus a $1,000 tax credit for each child younger than 17 at the end of the year. (For more on the tax issues of divorced parents, see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.)


If your kids are in day care so you can work, you're entitled to a dependent-care credit (up to $3,000 for one child younger than 13, and up to $6,000 for two or more). But if you can contribute to a flexible spending account, in which you may set aside as much as $5,000 in pretax dollars for child care, you're probably better off using the FSA. If you spend more than $5,000 on child care, you can claim the credit on up to $1,000 (see IRS Publication 503, Child and Dependent Care Expenses).

Michael Morton of Alameda, Cal., enjoyed another family-friendly tax break: a credit of $10,630 for adoption-related expenses (see IRS Form 8839). That baby-shower gift from Uncle Sam helped Morton, a single dad, defray the $25,000 it cost to bring his son, Thomas Anh Huy, home from Saigon, where he was born three years ago. "You just get a check back. It makes a big difference," says Morton, an operations manager for an online store.

Worried your child-support payments will bite back at tax time? Don't be. Whereas alimony -- a relative rarity these days -- counts as taxable income, child support escapes liability.

Ask for a little help

For all her coping skills, Engel often feels overwhelmed by the energy it takes to fly solo. "The biggest problem is not the finances but the stress itself," she says. "I'm all alone here. Other single parents have families to lean on. My family is in Russia. It's harder for us."

Still, her friends in Tucson provide a measure of solace and support. Lately, Engel has been dating a single father whose kids are the same age as hers and, she says, "sometimes we share advice on raising teens." Other friends fill more casual roles. "One is for talking about guys," says Engel. "Another is for going to the movies. Friends helped me find a lawyer and a mover. They helped me negotiate to buy a car. It's nice to have a network."

Such networks, formal and informal, offer single parents crucial backup. Morton enjoys getting together with a group of parents who have adopted Vietnamese children. "You look at your family, you look at each other -- you have things in common. It's great." He also relies on the enthusiastic support of his large, extended family: "Thomas is the only grandchild, so they're flipped out about him, in a good way."

Neighbors can help, too. Says Garrett: "I've run into neighborhood associations where a group, typically mothers or single parents, form their own network and help take care of each other's kids. Instead of worrying about the high cost of day care, they provide it for each other."

Then there's the been-there-done-that contingent. Parents Without Partners, an educational group, offers peer sessions for single parents on budgeting, child rearing and relationship issues, as well as activities, such as potluck dinners, that don't require a babysitter. "Many times, someone in the group has been where that new single parent is and can give insight," says Soucy. "We understand."

No matter their strategy (or lack thereof), single parents can take comfort in one sure thing: Sooner or later, kids grow up. On one of the cool, sunny days that characterize Tucson winters, Engel and her daughters sit in their bright kitchen and contemplate that prospect. Anya hopes her future will hold schooling in England and trips around the world (or at least to New York). Nastya is considering attending community college and wants to be a veterinarian, as long as she can stay close to Mom. Says Engel, "We dream of having a farm. I could garden, and she could have animals."

Meanwhile, she says, "things have gradually been getting easier. Now that I have the house, I feel more stable. The girls and I are happy. And that's the main reason for having children -- to make them happy."


A Will Says It All

Remember, no matter how carefully you plan for your children's financial security, you leave them dangerously vulnerable if you neglect to draft a will that designates a guardian in the event of your death. Without such a legally executed document, you risk having the state choose a surrogate parent for you. In Surviving the Loss of a Spouse (Dearborn, $16), Sheryl Garrett writes, "It could end up being a person you do not like, respect or even know."

On the other hand, be aware that even a legally designated guardian can't trump the other biological parent. No matter how contentious the divorce, that person will almost certainly be granted custody of the kids unless determined to be unfit.

Because state laws prohibit minors from managing assets, you'll probably also need to name a guardian of the property. Although one person can play both roles, "if there are substantial assets involved, or if the caretakers are lousy with money, sometimes it's healthier to name different parties," says Garrett.

It's better to choose one individual as guardian rather than a couple, says Martin Shenkman, an estate-planning specialist in Teaneck, N.J. "If the couple divorces, the child's guardianship may be litigated as part of that divorce. I've seen it happen -- not pretty."