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Single and Loving It Part 2


Single and Loving It Part 2

I received a lot of positive feedback from the “Single and Loving Itarticle. “I really loved that blog”, “I never see anything written for me...Finally!”, “can you write another one?”, “I’m never really sure if I’m doing the right thing with my money, retirement, savings”, “There’s a lot of us out there that need this!”

Single and Loving It: Part II


Many single adults are employed by startups, which often do not provide workplace 401k or 403b. So, what should a startup employee do? In 2019, an employee can contribute $19,000 per year to an employer 401k or 403b, however, if these are not provided by your employer an individual can only contribute $6,000 pa to a Traditional Individual Retirement Account (IRA). That’s a big difference, $19,000 vs $6,000, and all the more reason for starting your retirement savings early. I often give this example to highlight the value of starting early:

Let’s assume April contributes $5,000 a year into her IRA from age 25 to 65 (40 years), a total of $200,000 in savings (40 x $5,000). Jack, on the other hand, starts ten years later and contributes $5,000 a year into his IRA from age 35 to 65, a total of $150,000 in savings (30 x $5,000). How much will April and Jack have in their retirement account at age 65? Assuming an average investment return of 8% over the period, April will have $1,295,000 at age 65, and Jack will have $566,000. That is a difference of $729,000 ($1,295,000 less $566,000), and April only contributed $50,000 more than Jack, though she started 10 years earlier. That’s the magic of compounding returns.

Someone may say, “But I have student loans to repay; shouldn’t I focus on those now?” Yes, but what you can save now will go a long way. An experienced financial planner can look over your savings options, recommend how best to invest and create a personalized plan that will help to maximize your returns and savings, manage risk, and minimize your tax payout. I’ve been in the workplace and know first-hand how complicated and confusing retirement options can be.

Your Credit Score

For those that are single because of a divorce or widowhood, it’s important to remember that having a good credit score is important for your financial future. In many cases, finances were managed by the ex or late spouse, credit cards were held by a spouse or partner listed as an “authorized user”, and your utility or cell phone bills were in the other person’s name. This means that their payment and credit histories are linked to them and not to you. It is important to have your own credit score. You can do this by having a credit card and a utility bill in your name and be sure to put utilities on auto-pay so you have an excellent payment history. Keep your credit card activity below 50% of your limit, and pay it on time and in full. This will give you a good score in the event you will need it one day.

Health Savings Accounts (HSA)

I’m a big fan of these accounts. Healthcare costs are increasing at a rate well above inflation, and our healthcare system seems to be a political football at present. These accounts are fantastic--to qualify, you need to be enrolled in a high deductible health plan. If you are single and under the age of 55, you can contribute $3,500 a year. Why is an HSA account so good? Because your contribution is tax-deductible, and if you invest your contributions the growth on the is tax-free, and when you withdraw from the account (at any time) and use it for medical-related expenses it is tax-free income. This is the triple benefit of the one account – contributions are deductible, growth in the account balance are tax-free, and the money drawn from the account is tax-free income. I often recommend to clients to open an HSA account and not use it, i.e. do not withdraw from the account (unless an emergency), let the balance build and be available for your latter years.

Planning Emergencies

This is a key priority for singles, as there is no partner income to fall back on. Your emergency fund is the most important factor in managing your finances, not just for now but for the rest of your life. It’s for serious stuff – times of unemployment, medical emergency, a major repair, relocation or a family crisis and the like. This is your buffer zone for what life throws at you--it is not if, it is when. When a crisis hits, it doesn’t matter how good your budget is if you don’t have an emergency fund. Your emergency fund has both a psychological and financial effect. Without it, you may need to access cash from your credit card, or sell investments, or even draw from your 401k, 403b, or an IRA. All of these have very negative consequences – exorbitant interest rate, the forgoing of the benefit of compound interest, or tax penalties.

How much of an emergency fund should you have? Aim for an emergency fund with at least three to six months of essential expenses (mortgage, rent, utilities, loan repayment, insurance, living essentials, etc.). As one gets older, finding new employment can take longer. If that is you, I recommend having at least six months of essential expenses in your emergency fund. Remember, your lifestyle should reflect your income level, and it is important to guard against the impact of a drop in your earning capability.

Aging Parents

A good retirement plan involves the whole family. If you don’t already know, get an idea of how well your parents are set up for their retirement. You can be an important part of their retirement solution. Retirement can be complicated, moving from accumulating wealth to spending it. There are many factors to consider - Social Security, investing and sustainable withdrawals (not running out of money), accessing home equity, buying an annuity, estate and legacy planning, and the list goes on. These can be complicated topics and a challenge to plan. An experienced financial planner can look over these options and identify ways to manage risk. You can also play an important role in helping your parents work through these areas and assist them in engaging and working with a retirement advisor early on.

Women are paid less than men for the same work

This is a fact and we all hope that it is corrected sooner than later. Income inequality means that single women may need to work well into their 60’s, retiring later than their male counterparts. The goal here is to maximize savings and delay the day you need to draw on those savings. Delaying your social security until 70 is ideal, but for many, it is not practical to claim social security at this age, and only a very small proportion get to do this. If an individual is widowed and has not remarried at age 60, and also has worked and can expect their own social security, he or she will have the option of first claiming a survivor social security benefit and then at their full retirement age switch to their own benefit at full retirement age or later. Again, an experienced financial planner can assist you through these topics.

Assemble a Trusted Team

Like anything in life, there are challenges and we can’t know everything or see into the future. For many people, the built-in social safety net of a spouse or kids keeps them from being proactive in their retirement and estate planning. For a single person whose power of attorney is not immediately clear, or who may not have an advocate for where or when they are moved into long-term care, having a team of trusted professionals to build a financial safety net can make a world of difference. Having your money managed, your estate plan, your power of attorneys named and your funerary arrangements clear, can be a real weight off your shoulders. The goal is to be prepared for any eventuality, so you don't have to worry about it. Knowing that a trusted team of professionals with your best interests in mind can leave you space to feel secure and enjoy your retirement as a single person.

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