Financial planning for one-person households

Whether you’re happily single or don’t see marriage as the end game for your committed partnership, financial planning by yourself can be liberating and daunting at the same time. Even if you have a live-in or long-term partner, being unmarried requires you to file taxes as a single person and consider your financial future through a more independent lens.

Yet with a little extra planning and forethought, making financial decisions as an unmarried person can offer you freedom, flexibility and the opportunity to take full ownership of your financial future. This will allow you to feel confident whatever life brings—and whatever decisions you choose to make.

Here are five tips to make financial planning as an unmarried person more empowering.   

1. Don't put off retirement planning

Preparing early for retirement matters for everyone, and it’s especially crucial if your financial future rests solely in your hands. It’s easy to put off thinking about retirement for some later date, but the truth is that establishing consistent habits now is what will help you live more comfortably later.

If you have a 401(k) retirement account through your job, contribute at least enough to receive your employer match, and if possible, contribute the maximum amount allowed per year. If you don’t have access to an employer-sponsored retirement plan, a traditional or Roth IRA is also a good option. Most people are eligible to open an IRA, and it’s yours to keep and contribute to throughout your life.

Make sure to track how much you’ll have saved for retirement by the time you stop working, as well as what you’ll expect to spend in retirement. You may decide to increase your contributions to your retirement accounts or to wait longer to retire. These decisions can help you build up a larger financial cushion.

TIP: If you were previously married, if your marriage lasted 10 years or longer or if you’re widowed, you might be eligible for Social Security benefits based on your ex-spouse’s earnings record. 

2. Build up your emergency fund

Living on a single income makes it more likely that an emergency could knock your finances off course, since you don’t have the support of someone else’s income to help cover the cost. That means it’s important to have readily accessible funds in case of a job loss, illness or unexpected expense.

A typical financial recommendation is for one-person households to have the equivalent of three to six months of living expenses saved for emergencies. However, you might want to consider increasing your emergency fund to nine to 12 months of expenses. You can also set up regular contributions to an HSA (health savings account) if you have a high deductible health plan. This is a great way to set aside funds for those unexpected (yet inevitable) medical expenses and bills.

3. Prepare for home ownership

Owning a home can be an empowering and equity-building venture as a single person. If you’re considering buying a home, a mortgage loan officer can help you determine the best home loan option for your budget. Different mortgage loans have different interest rates and guidelines for how much you should contribute to a down payment.

To make sure you can manage ongoing expenses, buy a home with mortgage payments that fit into your existing budget while leaving room for ongoing maintenance and other costs. And don’t forget to take emergencies into account like that inevitable appliance repair or malfunction. When you encounter those bumps along the road, you want to have enough to cover it so as not to go into debt. You may also want to consider a home warranty as a way to prepare for the usual wear and tear that comes with owning a home.

If you’ve separated from or lost a partner, it can be smart to postpone any major financial decisions, such as buying or selling a home, for at least six months. You can use this time to take inventory of your accounts, determine how much cash you need to cover your expenses and, when you’re ready, make plans for how to move forward.

4. Consider your insurance options

Protecting your future also means protecting your assets. Pay specific attention to long-term disability insurance coverage, as employer coverage only applies to a portion of your salary. Purchasing your own policy has many benefits, including keeping your coverage if or when you change jobs and collecting benefits tax-free if you become disabled.

As part of your healthcare planning, you also may want to consider buying long-term care insurance. This kind of insurance policy helps to cover expenses if you need in-home care or to move into an assisted-living facility or nursing home.

Finally, you may wish to consider purchasing life insurance if you have people depending on your income, or if you have debts you would need settled after your death.

5. Name your beneficiaries

Preparing an estate plan isn’t generally something people enjoy thinking about, but it’s important—and it can be less clear cut if you live solo. If you don’t have a will and you don’t have a spouse or children, the inheritance laws in your state may dictate which family members, such as parents or siblings, receive your assets.

If you want more control over this process, take a few minutes to name your own beneficiaries. These could include close friends or family, or even charitable causes. You can specify in writing who you want to inherit your estate and can enlist the help of an estate planning attorney if you want some outside help. Note that a beneficiary designation for specific assets, such as insurance policies and retirement and other investment accounts, supersedes a will.

When creating your estate plan, you can also determine who you want to have as your power of attorney. This person can make financial decisions on your behalf, such as signing your tax returns, if you are unable to. Also designate a healthcare power of attorney to make decisions about your medical treatment if you are not able to do so. Be sure to have conversations with your powers of attorney so they understand how to carry out your wishes.

Finally, you may want to create a written healthcare plan—known as an advance directive or living will—with clear instructions about your wishes for medical treatment.

As a one-person household, with some thoughtful planning, managing your own financial future can go from daunting to empowering. When you consider long-term planning, prepare for unexpected challenges, and build your assets accordingly, you can create a strong financial foundation for wherever life takes you.

When it comes to creating a financial plan, you don’t have to go it alone. Learn about our approach to financial planning.