By FPA member Leslie T. Beck, CFP®, MBA
Last Updated: February 20, 2012
I was struck by a recent article in Fortune magazine by Eric Klinenberg, professor of sociology at NYU and author of “Going Solo: The Extraordinary Rise and Surprising Appeal of Living Alone”. In it, Klinenberg notes that according to the most recent census data, only 51 percent of U.S. adults are married (and presumably living together), down from over 70 percent in 1957. In addition, 28 percent of U.S. households are now made up of singles, the highest level in our history. Many large cities, such as Atlanta, Washington D.C., Denver, St. Louis, and Seattle have more than 40 percent of households with just one occupant — in Manhattan, that number is closer to 50 percent. And lest you think the U.S. is an aberration, European cities such as London and Paris have similar rates, with Stockholm boasting an astonishing 60 percent single household statistic.
Klinenberg goes on to conclude that based on his own research, most singles are alone by choice. He also credits their discretionary dollars for fueling the revival of many inner cities and local economies by noting the average single’s per capita annual expenditure of $34,471 in 2010, versus $28,017 for married individuals without children and $23,179 per adult for the highest spending families.
Having more discretionary income is certainly an advantage of being single. But the single life also has its challenges, many of them financial, which are glossed over in Klinenberg’s article. By single, I am referring to those who have no children or “significant other” in their lives — they live alone, do not pool their resources with others, and have no dependents.
Consider some of these statistics from the National Coalition for the Homeless: on an average night, 94 percent of those living on the streets in 23 major U.S. cities are single. Seventy percent of those in emergency shelters are single adults.
Bolstering those numbers are these median net worth statistics from the Census Bureau. Married couples have an average of $144,580 in net worth, while single men have $28,100 and single women $30,026. For those ages 55-64, the differences are even starker: $268,835 for married couples, versus $69,350 for single men and $62,140 for single women.
As a group, singles in particular need to do a lot more planning to maintain their standard of living, both while working and in retirement. Without the benefit of the economic resources of a partner (whether actual or potential), any setback in life, such as health issues or job loss, hits a single harder. A 2006 Center for Retirement Research study found that single adults were more likely to become severely disabled than married adults (10.5 percent vs. 5.6 percent), and to enter a nursing home (5.7 percent vs. 2.7 percent). Disability reduced net worth for married individuals by 16 percent, but by 42 percent for singles. And those singles who lost their jobs on average suffered a decline of 33 percent of their net worth, compared with 21 percent for marrieds.
While I believe comprehensive financial planning is essential for any individual, the following five items are especially crucial for those living alone.
- Retirement Savings Must Come First. What if singles consumed at the level of married individuals without children cited above, and saved the difference ($6,454)? Over 30 years, at a four percent rate of return, they would accumulate more than $376,000! And with Social Security benefits based only on their own earnings, singles need to accumulate as much supplemental savings as possible. So pay yourself first, whether through employer-based plans such as a 401(k) or IRAs (both Roth and traditional).
- Build an Emergency Fund. Because they do not have an additional economic resource to fall back on (i.e. a spouse or partner), singles need to ensure they have on hand six months’ worth of expenses in an emergency savings account. These funds can be in a money market or bank savings account, or in laddered CDs that come due every month. But they should be liquid and readily accessible in an emergency.
- Consider Disability and Long-term Care Insurance. This column is too short to go into the intricacies of disability and long-term care insurance. Speak with a good insurance broker or your financial planner to find the right plans for you. Short- and long-term disability insurance is often available through your employer — find out if it’s portable should you leave your job. Long-term care insurance has become harder to find as many carriers have dropped out of the market, but it’s still a good idea for those who don’t have the resources to care for themselves later in life. And like all insurance, you can only purchase these when you don’t need them, i.e. when you’re healthy! So don’t wait until something happens.
- Prepare Medical Directives, Living Wills, and Powers of Attorney. When you’re living alone, it’s even more important that you have documents detailing what is to be done should you become injured or seriously ill and are unable to communicate for yourself. Make sure copies of those documents are filed with your primary physician and the local hospital. Consider (carefully!) granting a trusted relative, friend, or professional (such as your attorney or accountant) your power of attorney to act on your behalf in financial and medical matters when you cannot.
- Make a Will. Don’t leave it to the state to decide who will receive your assets when you die. Many singles like the idea of leaving a charitable gift or bequest that benefits their local community or cause. An estate planning attorney can help you do this in the most efficient way possible, as well as prepare the documents recommended above.
Not part of my list, but definitely an important part of my recommendation, would be to get and stay involved: in your community, in society, in life. Studies also show that those with the most social connections live happier, longer lives.
FPA member Leslie T. Beck, CFP®, MBA is a founding member of Compass Wealth Management LLC (Compass) in Maplewood, N.J. Securities and advisory services offered through The Strategic Financial Alliance Inc. (SFA), member FINRA/SIPC. Financial planning offered through Compass. Leslie is a registered representative and investment advisor representative of SFA, which is otherwise unaffiliated with Compass.