Build Your Base
Many married couples pay or save for homes, have retirement plans, and set aside a bit each month in savings. Single people often make the mistake of assuming that none of these efforts apply to them. Not true. In fact, home ownership can be a good investment and saving for retirement and other objectives are always smart steps. Don’t let your single status stand in the way of building a strong financial base.
Secure Your Safety Net
Losing a job or being unable to work due to illness can be particularly tough on single people because they don’t have spouses to share the financial burden if income drops or disappears. That means it’s particularly important to have a financial cushion—typically up to six months’ salary—to cover your needs in case your income stream stops. In addition, consider buying disability insurance that will replace your income if you are incapacitated. Find out whether your employer offers it, how much of your salary it will replace, and how long it will last so that you know whether you’ll need to supplement that coverage. While disability insurance can be a good investment, life insurance may not be, unless you have children or someone else who is financially dependent on you. Consult with a CPA for more advice on your insurance needs.
Start Your Retirement Nest Egg
Being single offers a great deal of independence, but it also means that you must be self-reliant. This is particularly true when it comes to retirement, when you won’t be able to count on pooling your pension or IRA proceeds with a spouse. Make savings a habit now and you will be pleasantly surprised to see how much you’ve accumulated in only 10 years, let alone 30 or more. If your employer matches contributions to a company pension plan, be sure to take advantage of the offer since it can significantly expand your nest egg.
Make Plans for an Emergency
As discussed above, a financial safety net can help ensure that you have money should you become ill or incapacitated, but who will take care of you in this situation? Consider giving a trusted loved one or adviser power of attorney to make decisions for you should you be unable to do so. Everyone over 21 should complete a health care proxy. Many older people consider long-term-care insurance, but this choice is a complicated one that may not be advisable in all situations, so it’s a good idea to discuss it with your CPA. Long-term care insurance can be expensive, so first find out whether you are covered under an employer’s long-term-care plan. Also review any policy’s limitations, benefits qualification requirements, and what kinds of facilities or care are covered to ensure the policy is right for you.
Safeguard Your Legacy
If a single person dies without a will, the estate will be distributed according to the intestate succession laws, which vary with each state. Those who inherit may include registered domestic partners or blood relatives. No one else typically has a claim to a single person’s estate. As a result, if you’d like your assets to go to a particular relative, a long-term partner, close friend, or your favorite charity, you will need to have it in writing. If you have children, anticipating their financial needs in the event of your death should be a critical part of your estate planning.
Turn to Your Local CPA
Have more questions about financial considerations for single people or any other financial concern? Your local CPA can help. He or she can provide the insights or advice you need to make smart decisions. To find a CPA in Pennsylvania by location or area of expertise, visit www.IneedaCPA.org.
The CommonWealth Tips columns are a joint effort of the AICPA and the Pennsylvania Institute of Certified Public Accountants (PICPA), as part of the profession’s nationwide 360 Degrees of Financial Literacy program.
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