More and more people are unmarried or living alone by choice. Planning for your future on your own can be empowering yet intimidating at the same time. Many singles greatly value independence, and having a solid plan in place can pave the path to financial independence as well.
Here are a few things to think about as a single-person household:
Build Emergency Savings First: Emergency savings is a foundational piece of any financial plan, but for those living on a single income, an unexpected expense or loss of income could be especially stressful. We recommend using a high yield savings account. The right amount of savings varies for everyone, but a general rule of thumb is 6 months of living expenses.
Invest for Retirement: Planning for retirement becomes even more important when funding it by yourself. If your employer offers a retirement plan with a match, contribute at least enough to capture the full match. Max your contributions if you can, especially in earlier years when your money has the most time to compound. Don’t overlook Roth accounts (if you have access) and taxable accounts. Having the flexibility to withdraw from accounts with differing tax treatment in retirement can stretch your retirement savings further.
Insurance: You probably don’t need life insurance if you don’t have people depending on your income, but consider long-term disability insurance which can replace income If you become disabled. It’s worth evaluating options outside of coverage that your employer may offer – there are differences in benefits, premiums and portability. Also consider long-term care insurance, which can offset costs if you need in-home care or need to move into a care facility later in life. These costs can be great, and it is a mistaken belief that Medicare will cover them.
Estate Planning: Many people think estate planning is only for couples or parents. Without a will or named beneficiaries, the state that you live in will determine what happens to your assets when you die (they will go through a successive list of relatives). You may have more distant relatives, friends, or charities that you wish your assets to go to. It’s also important to think about protecting your wishes when it comes to financial and healthcare decisions, should you become unable to communicate or make decisions yourself. This is where powers of attorney and healthcare directives come into play. If you don’t have a trusted person to act on your behalf, there are options such as attorneys and registered nurse health care advocates.
Integras Partners understands the unique considerations singles face. We help define your goals and create a path to reach them.
Wherever you are on your journey, we’re with you every step of the way.
Ann was facing her next chapter in life. She was recently widowed and had been considering retirement. She wanted to live near grandchildren and downsize her home.
Almost all of Ann’s assets were in a company retirement plan, advised by the plan’s financial advisor. Because they told the advisor that they “didn’t want to lose money”, Ann’s allocation was 55% short-term bonds and 45% cash. She was eligible for a widow’s Social Security benefit but was reluctant to retire, fearful that she didn’t have enough money.
Ann’s fear stemmed from her thinking that she needed to preserve the capital and live off the interest. Our philosophy is that retirees don’t need to preserve all their capital for their heirs, they just need to not run out of money. Ann actually had enough to retire but it was too conservatively invested to meet all of her spending needs throughout retirement. Our layered risk approach allows clients to feel more peace spending in retirement. This is because we take modest risk with investments for the next several years of spending, then capture market returns with the majority of assets that can now remain invested long enough to go through market cycles. This also allows for greater spending over time to account for inflation.
Ann has since moved into her new home and is spending more time with her grandkids. She has the peace of mind to enjoy life knowing that her investments will continue to provide supplemental income with minimal short-term risks.
If you’re interested in discussing how we might help you, please give us a call at (404) 941-2800, or reach out to us here.
Most 401(k) and other retirement plans offer Target Date Funds (TDFs) as a default choice. They have become increasingly popular for a few good reasons but are rarely the best solution once your accounts achieve some size.
Let’s look at how they work and whether they are the most efficient choice for you.
TDFs are a great choice for beginners, or when you join a new employer plan. There is usually a lineup of funds targeting retirement dates in increments of five or so years. The concept is that the fund becomes increasingly conservative as the target date approaches, but that is a one-size-fits-all approach that can’t take your unique needs into account.
So, when are TDFs not the best investment choice?
To start, all of your money is invested with one fund family, instead of getting different approaches and methodologies. These funds are also usually invested across all asset classes and industries instead of those best suited to the current economic environment. They also evenly spread bond exposure instead of actively selecting the most appropriate bond sectors.
The biggest challenge with TDFs is that you don’t want all your investments too conservative as you enter retirement.
Yes, you want to make sure that you have some conservative assets to draw from during rough patches, but you still need growth during retirement to keep pace with inflation.
Here are a few things to consider:
· Do you actively rebalance your accounts?
· Does your plan have tools to evaluate your allocation vs. your goals and timeframes?
· Do you compare what you own against what’s available?
· Have you considered the advantages of an IRA for funds in an old employer plan?
· Are you layering investment risks to match your goal timeframes?
Inflation is one of the major risks to retirement. We’re all living longer, and the things we spend more of our money on in our older years (healthcare, senior housing) have the biggest price increases.
The recent inflationary environment is fresh in everyone’s mind, but even 2% inflation (the Fed’s current goal) is a risk to a retiree’s spending power over time. In a simple example, a $100,000 lifestyle when you initially retire would cost you over $148,000 in 20 years, assuming prices rose at a constant rate of 2%.
Inflation can’t be controlled, but evaluating it within your retirement plan can help identify ways to mitigate it. Here are a few ways inflation can be considered.
Investment Allocation: Investing too conservatively may mean that your investments won’t meet your spending needs long term. You want to make sure that you have enough invested for growth to keep up with inflation. This is not a static allocation. Integras Partners’ investment strategies are designed to align with anticipated inflation-adjusted spending needs over time.
Investment Selection: Investment selection within your portfolio is also a consideration. For example, there are types of investments that typically keep ahead of inflation, such as companies with a history of dividend growth and real estate.
Social Security Claiming Strategies: Delaying social security can give you higher lifetime benefits, but factors such as health and longevity must also be considered.
Strategies to Offset Healthcare Costs: Healthcare costs can be significant at older ages, and costs inflate at higher rates than other spending categories. Evaluate long-term care insurance or how to best make use of an HSA.
Withdrawal Strategies: Withdrawing too much in early retirement years, or having to sell assets to meet withdrawals during down markets are major risks to the longevity of a portfolio. We dedicate a portion of investments to near-term spending needs (spending expected to occur within 2-3 years) using relatively conservative, liquid investments. Drawing from that portion of the portfolio allows longer-term assets to remain invested for growth, with the time needed to recover from market downturns.
Reaching certain ages can be meaningful for financial planning. Age can affect contributions and withdrawal rules from retirement accounts, social security and pension options, and even taxes as many aspects of the tax code are linked to age.
Here are a few significant ages and planning considerations.
50: Eligible to make catch-up contributions to retirement accounts
55: Eligible for penalty exceptions for certain withdrawals from employer retirement accounts
59 ½: Eligible for retirement account withdrawals without early distribution penalty; Potentially eligible to move money from an employer plan to an IRA while still working
60: Beginning in 2025, additional catch-up contributions allowed
62: Earliest age to claim social security (at a reduced benefit amount)
65: Eligible for Medicare coverage (pay attention to enrollment period, which opens prior to 65th birthday); Increase in standard deduction
67: Full retirement age for social security for most people (depends on birth year)
70: Maximum social security benefit is reached
70 ½: Eligible to make Qualified Charitable Distributions
73 or 75: Required minimum distribution age from retirement accounts (depends on birth year)
Integras Partners provides financial planning and investment management to our clients. We have a deep relationship with our clients and understand their needs and goals. The planning process is integral to investment allocation decisions.
Changes to the FAFSA form and the formula for determining a family’s need for aid are changing, effective for the 2024-2025 school year. While all the changes are beyond the scope of this post, here we highlight two from a financial planning perspective.
Parent Income:
Contributions (pre-tax salary deferrals) to employer retirement accounts are no longer added back to parent income. This could be an additional incentive for parents with employer plans to max out contributions in years that the FAFSA looks at income. The FAFSA looks at the year two years prior to the beginning of the school year. For example, the 2024-2025 school year looks at 2022 income. Note that this change only applies to contributions that come straight from a salary reduction. Contributions to IRAs that are deductible on the tax return are still added back to parent income.
Grandparent Contributions: Up until now, while grandparent (or other non-parent) owned 529 accounts did not count towards a parent or student’s assets, withdrawals from said account counted as income to the student which had to be reported on the FAFSA. This could reduce the student’s aid eligibility. With the changes, withdrawals from a third-party owned 529 account will no longer count as student income. Grandparents can now maintain a 529 account for their grandchildren and distribute funds without impacting aid eligibility.
Because of these changes, the 2024-2025 form will not be available until December this year. You can stay up to date on announcements at https://studentaid.gov/, or through college financial aid office websites.
Call us to review your investment approach (404) 941-2800.
