Financial Planning for Singles
Six basic rules to help you secure your future.
The August issue of Kiplinger's Personal Finance has advice to help couples who can't wed (or choose not to) customize their tax and estate planning. Finance Basics for Partners has tips on how unmarried couples can handle everything from property division to child custody to who makes end-of-life decisions.
It also offers these six rules to help singles plan their financial lives:
Protect income. Employer-paid disability insurance typically replaces 60% of your income, but you owe tax on the benefit. Aim to replace another 15% to 20% of your salary through individual coverage. See Why You Need Disability Insurance for more information.
Cover future care. The median cost of a private room in a nursing home is now $206 a day, according to Genworth Financial, and the price is expected to rise rapidly. Pick up a long-term-care policy with inflation to help cover the costs (see Long-Term Care You Can Afford).
Choose a wingman. Use the appropriate legal documents to assign your health-care power of attorney, which lets your representative make medical decisions for you if you cannot, as well as your durable power of attorney, which gives your representative the authority to make financial decisions on your behalf. If you have minor children, you will need to nominate a guardian for them in a legally executed will. (If you don't have children, see this advice on turning to extended family, friends, neighbors or trusted advisers to make health-care and financial decisions in case you become incapacitated.)
Boost earning power. Your ability to earn money is your biggest asset, says Sheryl Garrett, of the Garrett Planning Network. Burnish your skills with professional training or by getting an advanced degree. See Grad Degrees From a Distance for information about getting your master's online.
Pump up retirement accounts. At a minimum, you should contribute enough to your 401(k) to get any company match. If you have cash to spare, set up a Roth IRA. You'll pay taxes on your contributions upfront, but your earnings will accumulate tax-free, and you won't owe taxes when you withdraw money in retirement (see Why You Need a Roth IRA).
Set up an emergency fund. Aim for enough money to cover your expenses for at least six months or, in this uncertain job market, even a year (see How Much Cash You Really Need).