By Dr. Ned Gandevani
May 28, 2014.
I appreciate the efforts and hard work single parents provide to raise their young children and do whatever it takes to get them ready for a bright and promising future. I lost my father at the young age and was raised by my mother. As I witnessed with my own mother, most of the single parents strive to accommodate their children to achieve success despite all the challenges and curve balls life throws at them.
Here are seven financial planning tips for all the brave and selfless single parents.
1. Choose a guardian.
It is important to choose the right individual to look after your young children if something happens to you. As part of your estate planning, you should name the guardian of your children and executor for your will. Someone at about your age is preferred since an older person may pre-decease you, an executor should be well organized and have some basic knowledge about personal finance.
2. Save for emergencies.
There are always rainy days. You need to start saving in a systematic way. First build your emergency fund before investing or spending on your favorite holiday gift and other items. As a rule of thumb, your cash fund should be about three to five times of your monthly expenses. If you spend on average $3,000 per month for rent, mortgage, groceries, clothing, utilities and other basic staples, then you should have $9,000 to $15,000 set aside in a money market or savings account in your bank. In case you are fired or laid off, this fund should help you continue your life style until you find a new job.
3. Get health insurance.
With the constant rise in medical costs, anyone without health insurance faces an uphill battle against medical expenses. According to a report published in the American Journal of Medicine, in 2007 medical expenses contribute to more than 62 percent of individual bankruptcy filings(1).
Divorce, the death of a spouse, or losing your job is the primary cause for losing health insurance. Learn more about Affordable Care Act (Obamacare) and shop for insurance plans for benefits and costs at your state’s marketplace or at HealthCare.gov.
4. Get life insurance.
Depending on your finance, life insurance should be among your top priority in financial planning. The minimum coverage and policy you should consider is to see children to finish high school. To determine your life insurance needs you should identify what it should pay when you are gone. It could range from living expenses, paying off a mortgage, college education and anything else you like your child to have in your absence.
A term policy is the least expensive policy you can purchase at a younger age. The rates do escalate as you get older. It is best to lock in a longer term at the youngest age possible.
5. Get disability insurance.
Your income is the main source for achieving your financial goals and living your dreams. A disability policy insures your income. It may surprise you to learn according to Social Security Administration studies show just over 1 in 4 of today’s 20 year-olds will become disabled before reading age 67 (2). Furthermore, According to Council for Disability Awareness ‘s 2012 Long-Term Disability Claims Review 90% of disability is due to sickness; a prolong sickness could cause you lose your income (3).
Disability policies could be short term or long-term. A long-term disability may pay 50% to 70% of your salary up to age 65 or 67. They could have different waiting periods starting at 30 days or longer before the benefits are triggered. Furthermore, they could include a definition of disability referred to as “own occupation” where the policy will pay a monthly benefit until a limiting age if you are unable to perform the duties of your own occupation. There can be more restrictive definitions of disability such as “any occupation”. It is best to discuss this with a disability income professional.
6. Save for retirement
Your employer may offer 401(k) or any other employer sponsored retirement plan. Generally, you can contribute up to $17,500 to a 401(k), 403(b) or the federal government’s Thrift Savings Plan in 2014. If you are 50 or older, your contribution is increased by an additional $5,500 to 401(k) in 2014, or a total of $23,000.
You can open an Individual Retirement Account (IRA) that allows you to save tax deferred for retirement. You can contribute up to $5,500 to an IRA in 2014, which increases to $6,500 if you are age 50 or older. However, if you have a workplace retirement plan, the tax deduction for traditional IRA contributions is phased out for individuals with modified adjusted gross incomes between $60,000 and $70,000 in 2014.
Find any means to save for your retirement.
7. Get Long Term Care Insurance
If you encounter a prolonged illness or disability, you may inflict your children and loved ones with the burden of your daily care. Among a wide array of services, a long-term care (LTC) policy is designed to cover the costs of nursing home care, an assisted living facility or at-home assistance.
The rising cost of a nursing-home and round the clock home care could deplete your hard earned assets and savings in a short period. According to the American Association for Long-Term Care Insurance, the best age to apply for long term care is in your mid-50s(4). Conversely, once you hit 60 or so, you have less chance to qualify for the coverage. The association’s 2010 Sourcebook indicated only 38% of applicants ages between 60 and 69 qualified for good health discount(5).
If you thought long-term care is for the older adults, think again. According to the industry data, 43% of people who claimed for long term benefits are under age of 65. Take advantage of your good health now to lock in an affordable long-term care policy(6).
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1. The American Journal of Medicine. 2009. Medical Bankruptcy in the United States, 2007: Results of a National Study. Retrieved http://www.amjmed.com/article/S0002-9343(09)00404-5/abstract
2. Social Security Administration. Disability Planner: Social Security Protection If You Become Disabled. Retrieved http://www.ssa.gov/dibplan/
3. Council for Disability Awareness, Long-Term Disability Claims Review. 2012. Retrieved http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp
4. American Association for Long Term Care. Best Ages To Buy Long Term Care Insurance Described. Retrieved http://www.aaltci.org/news/long-term-care-insurance-news/best-ages-to-buy-long-term-care-insurance-described
5. American Association for Long-Term Care Insurance, LTCi Sourcebook – 2010
6. JHA Disability Fact Book, 2008
Dr. Nader “Ned” Gandevani is a professor for MBA and MSF programs at New England College of Business in Boston, MA. He is a published author with four books* and many articles and essays in investment, finance, business, investment psychology, and accounting topics. He could be reached at Nader_Gandevani@fhfg.com or 631-870-6811.
Dr. Nader “Ned” Gandevani is a Registered Representative (RR) and Investment Advisor Representative (IAR) of Park Avenue Securities, LLC (PAS), 95-25 Queens Blvd, 10th Floor, Rego Park, NY 11374. Securities products/services and advisory services are offered through PAS, a registered broker-dealer and investment advisor, 1-718-268-9255. He is a Financial Representative of The Guardian Life Insurance Company of America, New York, NY. NMG Financial Services is not an affiliate or subsidiary or PAS or Guardian. Not practicing for Guardian or any subsidiaries or affiliates thereof. Neither Park Avenue Securities, Guardian nor their representatives render legal or tax advice. Please consult with your attorney, accountant and/or tax advisor concerning your particular circumstances.