3 Financial Planning Considerations for Single People

As financial planners, we tend to work with a wide variety of individuals, ranging in age, nationality, religious beliefs, gender identities, sexual orientation, and marital status, among many other factors. However, one element that isn’t often discussed in our training is how to work with a single individual.
How Financial Planning Differs for Single Individuals
When we think about financial planning as a whole and how we serve our clients, we tend to focus on the same big-picture topics, such as:
- Cash flow
- Insurance
- Estate planning
- Investments
- Retirement
- Taxes
These are all great and valuable topics, and all our clients deserve a financial plan that makes sense to them. However, the needs of married couples and single individuals will differ, especially if children or dependents are involved.
Financial planning should be done with the client and their specific situation in mind. We’d all agree that it makes no sense to focus on student loan repayment if a client doesn’t have any student loans. However, we sometimes forget that it makes very little sense to create certain aspects of a financial plan for a single person; we simply default to what we would normally build for and recommend to couples.
To ensure you’re providing the best service and most relevant plan for your single clients, let’s dive into the three areas that tend to differ the most in their plans.
Estate Planning for Single Clients
First, let’s focus on estate planning needs and end-of-life considerations. Not every client who is single throughout retirement and old age will want to leave any assets behind. That’s why it’s even more important to discuss how they want to spend their money in retirement — do they plan to “go for broke” and want to spend their money until they pass? Do they want to have fairly set expenses and leave whatever is left behind to a charity? The answers to these questions will open up options like retirement annuities and can even change the accounts or investments you recommend for your clients.
Now let’s say your client has a legacy they want to leave to other people or organizations. While the creation of wills and trusts will likely be very similar for all clients, there should be special emphasis on our clients’ health and cognitive abilities as they age. Having a trust with a durable power of attorney and a healthcare proxy is vital in setting up our single clients well for the future. Even if they decide to leave their wealth to a charity, creating a trust that potentially funds them and takes care of them in their elder years will be crucially important.
For either option — leaving their estate to someone or not — it’s important that you understand your client’s values. From there, you can ensure their estate has all the pieces it needs to be executed accordingly.
A comprehensive estate plan for a single person should include:
- A will: This is the cornerstone of any estate plan. It details how the client’s assets should be distributed upon their death. For single individuals, specifying beneficiaries clearly is crucial to ensure their wishes are followed.
- Durable power of attorney: This allows a designated person to manage the client’s finances if the client becomes incapacitated.
- Healthcare proxy: This appoints someone to make medical decisions on the client’s behalf if they are unable to do so.
- Advance healthcare directive: This document specifies the client’s wishes regarding medical treatment and care if they are unable to communicate their decisions. It can include preferences for life-sustaining treatment, resuscitation, and other medical interventions.
- Living will: Similar to an advance directive, a living will provides specific instructions about healthcare decisions, particularly end-of-life care.
- Living trust: This can help manage the client’s assets during their lifetime and distribute them after their death, potentially avoiding probate.
Beyond these essentials, single individuals might consider other types of trusts that can provide benefits during their lifetime and ensure their wishes are met after their passing:
- Charitable remainder trust (CRT): This type of trust allows the client to receive income from the trust during their lifetime, with the remainder going to a specified charity upon their death. This can provide a stream of income, offer potential tax benefits, and support charitable causes the client cares about.
- Revocable living trust: This trust can be altered or revoked by the client during their lifetime. It allows for the management of assets and can specify how they should be distributed after death, helping to avoid probate and providing privacy.
- Irrevocable trust: Once established, this trust cannot be modified. It can offer significant tax advantages and asset protection, making it a useful tool for wealth preservation.
- Testamentary trust: Created through a will, this trust only comes into effect upon the client’s death. It can be used to manage and distribute assets according to the client’s wishes.
- Special needs trust: For clients who want to provide for a loved one with special needs without affecting their eligibility for government benefits, this trust can be an important part of their estate plan.
Additionally, it’s crucial for single individuals to document their preferences for care in the event of cognitive disability. This can be done through:
- Personal care instructions: These can be detailed in the advance healthcare directive or as a separate document. They should specify where the individual wishes to live (e.g., at home with in-home care, in an assisted living facility, or in a nursing home) and any preferences for the type of care they receive.
- Letter of intent: Although not legally binding, a letter of intent can provide guidance to the power of attorney and healthcare proxy about the individual’s preferences for care, lifestyle, and other personal wishes.
By addressing these elements, single individuals can ensure their affairs are managed according to their wishes and that they are cared for in case of incapacity. This approach provides peace of mind and ensures their legacy is handled in a way that aligns with their values and goals.
Insurance Planning for Single Clients
Next, you’ll need to look at insurance aspects for your single clients. It’s essential to draw a distinction between single clients with dependents and family/friends who they want to leave their wealth to — and those who will leave everything to a charity. If they have dependents, it will be prudent to run a full analysis of their wealth and help them set up life insurance to take care of debts and provide for those they leave behind. If they plan on leaving their wealth to a charity, life insurance may not be necessary.
For single individuals, a key consideration is long-term care (LTC) insurance. While LTC is important for all clients, our single clients —especially those without dependents or close family members — may have no one to depend on. This means they may have to spend their last years in an assisted living community, hire an in-home caretaker, or perhaps even spend some time in hospice before passing. If their accounts do not or would not cover those expenses, having an LTC policy may be crucial to set them up well for their advanced years.
Long-term care (LTC) insurance for single clients:
Why LTC insurance matters
LTC insurance helps cover the costs of long-term care services, which are not typically covered by regular health insurance or Medicare. These include services in various settings, such as home care, assisted living facilities, and nursing homes.
Key considerations for LTC insurance:
- Cost of care: Understand the potential costs of long-term care in different settings. For example, assisted living can cost thousands of dollars per month, and nursing home care can be even more expensive.
- Policy benefits: Evaluate the daily or monthly benefit amounts, benefit periods, and any inflation protection. These factors determine how much the insurance will pay out and for how long.
- Eligibility requirements: Know the health conditions that might affect eligibility for LTC insurance. Policies often require medical underwriting.
- Self-funding vs. insurance: Assess the client’s accumulated wealth and liquidity. For clients who can afford significant out-of-pocket expenses (e.g. their estimated monthly living expenses from their nest egg meet or exceed the cost of long-term care), it might make more sense to self-fund their long-term care rather than purchase LTC insurance.
Assessing wealth and liquidity:
When determining if a client should self-fund their long-term or get insurance, it’s important to evaluate:
- Liquid assets: Determine the client’s liquid assets, such as savings accounts, stocks, and bonds. Liquid assets are easily accessible and can be used to cover long-term care costs.
- Retirement accounts: Consider the accessibility of funds in retirement accounts. Early withdrawals can incur penalties and taxes, so these should be evaluated carefully.
- Real estate: Evaluate the potential to liquidate or leverage real estate holdings. For example, selling a home or taking out a reverse mortgage might provide funds for long-term care.
- Cash flow analysis: Conduct a thorough cash flow analysis to ensure the client can maintain their standard of living while covering long-term care costs.
Other insurance considerations for single individuals
In addition to LTC insurance, single individuals should consider the following types of insurance:
- Health insurance: Health insurance is crucial for everyone, but especially for single individuals who do not have a partner’s plan to fall back on. It’s important to review options during open enrollment periods to ensure adequate coverage for their medical needs, including preventive care, emergency services, and prescription drugs.
- Disability insurance: This type of insurance replaces a portion of the client’s income if they cannot work due to illness or injury. For single individuals who rely solely on their own income, disability insurance is vital to maintain financial stability during periods of incapacity.
- Umbrella insurance: This provides additional liability coverage beyond the limits of existing policies. It can be particularly useful for single individuals who want extra protection against lawsuits or significant claims.
By carefully considering these various types of insurance, single individuals can ensure they are adequately protected against various potential risks and challenges. This comprehensive approach to insurance planning helps secure their financial future and provides peace of mind.
Retirement Planning for Single Clients
Retirement planning is crucial for all clients, but single individuals face unique challenges. Those without partners typically rely solely on their savings and investments, so careful planning is vital to ensuring that they can be sufficiently cared for.
To ensure your single client can live a comfortable lifestyle in retirement (and old age), they must understand:
- Budgeting: Develop a detailed budget that includes anticipated costs for support services. This helps ensure that funds are available when needed.
- Withdrawals: If they have a robust retirement plan, your client will need to understand limitations on withdrawals in order to fund their lifestyle.
Key considerations for retirement planning:
Social connections:
- Social interaction: People are social beings, and the need for social interaction doesn’t diminish with age. Single individuals should think through where they might live when they retire and how they plan on getting much-needed social connections and interactions. This could involve moving to a community with a strong social network, participating in clubs or organizations, or planning regular activities with friends and family.
- Community living: Retirement communities or co-housing arrangements can provide built-in social networks and activities, which can benefit single retirees. These communities often offer amenities and services that support social engagement and reduce isolation. There are also communities where a client can submit upfront payment to “save their spot” inside a senior living buy-in community (also called life plan communities or continuing care retirement communities). These communities provide the continuum of care, through independent living, assisted living, and memory care/skilled nursing.
Maintaining property:
- Home maintenance: As single individuals age, tasks like mowing the lawn, shoveling snow, or making minor repairs can become challenging. It’s important to plan for hiring help for these tasks. Setting aside funds specifically for home maintenance services can ensure the property remains in good condition without placing undue physical strain on the client.
- Home modifications: As clients age, they may need to make modifications to their homes to ensure they remain accessible and safe. This could include installing ramps, stair lifts, or walk-in showers. Planning for these potential expenses is crucial. Clients should also consider whether their current home is suitable for aging in place or if they might need to move to a more accessible living environment.
Financial considerations:
- Savings and investments: Single individuals will typically rely solely on their own savings and investments, so careful planning to ensure they can be sufficiently taken care of is key. This includes maximizing contributions to retirement accounts, such as 401(k)s and IRAs, and ensuring a diversified investment portfolio.
- Emergency fund: Maintaining a robust emergency fund is essential. This fund should be able to cover unexpected expenses, such as medical bills or major home repairs, without derailing their retirement plans.
- Income streams: It’s important to ensure that there are multiple sources of income in retirement. This can include Social Security, pensions, annuities, and investment income. Diversifying income sources can provide stability and reduce risk.
Personal care:
Single folks cannot always rely on others to help with their personal care needs. It’s important to anticipate costs for:
- Meal preparation or delivery
- Grocery shopping and errands
- Housekeeping
- Bathing and activities of daily living
Healthcare Services:
While long-term care insurance, Social Security, and Medicare may cover costs associated with as single client’s needs, it’s also important to save for extra costs. These might include:
- In-home healthcare providers
- Visiting nurses
- Health-related home modifications (like railings, wheelchair ramps, etc.)
- Medication
- Hospice services
Questions to Ask Single Clients When Developing Their Financial Plan
Our single clients may have specific needs that must be met through proper planning — which means we must understand their current circumstances and future aspirations. To guide that conversation, here are key questions to ask your single clients:
- Whom do you plan to leave your wealth to?
- What is your plan for retirement?
- Where will you live?
- What lifestyle do you envision for yourself?
- Who will take care of you, should you become disabled, ill, or lose some or all of your cognitive abilities?
- Where would you want to live should your health decline?
- Additionally, how will you plan for and finance your preferred living arrangements?
- If you are unable to manage your finances, whom do you trust to take care of that?
Additionally, consider these questions to further tailor your financial plan:
- Healthcare advocacy: Have you identified someone to advocate for your healthcare needs if you are unable to make decisions for yourself?
- Legacy planning: Beyond financial assets, have you considered how you wish to be remembered or any charitable causes you want to support?
- Long-term care insurance: Have you evaluated the need for long-term care insurance based on your assets and potential future healthcare needs?
- Social engagement: How do you plan to maintain social connections and relationships as you age, particularly if you live alone?
By addressing these questions and considerations, financial planners can help single individuals achieve financial security, peace of mind, and a fulfilling retirement lifestyle.
Learn New Ways to Approach Unique Client Scenarios
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P.S. If you’re not a financial planner and you found this information, we know it can be both useful and overwhelming. There are a lot of considerations when making important financial decisions for yourself. If you want to book a call to speak to a financial planner, head over to Guiding Wealth, the financial planning practice owned by our founder, Hannah Moore CFP®, to book a call with our expert team of financial planners.