Planners have been hearing about and preparing for the baby boom ever since the first 1946er became a client. Yet their single-minded focus on boomers may mean they've missed another demographic trend: the singles surge.
According to the Census Bureau, divorce rates and the proportion of the population that's never been married has risen. From 2000 to 2010, singles increased to 35% of 50 to 54 year olds, from 29%. Among 55 to 64 year olds, singles increased to 33%, from 30%.
Many clients are in the 50-to-64 age group, so it's likely more singles are in planners' address books now. "There are lots of singles seeking help," says CFP Dee Lee, head of Harvard Financial Educators in Harvard, Mass. "I see that in the statistics about the attendees at my seminars."
Although single clients have many of the same needs as married couples, there are differences in tailoring financial plans. "They have to save and invest more - for emergencies and for retirement," says Connie Stone, president of Stepping Stone Financial in Chagrin Falls, Ohio. "Given the lower average income of an individual versus a couple, it is definitely more challenging for singles to meet long-term savings goals," says Diahann Lassus, president of Lassus Wherley and Associates, a wealth management firm in New Providence, N.J.
Building a retirement fund is a key long-term goal for singles because there will be one Social Security check coming in, rather than two. Among working married couples, it might make sense for the higher-earning spouse to defer Social Security retirement benefits as long as possible, perhaps as late as age 70, in order to provide a higher death benefit. That's not an issue for single clients, so they can either start Social Security earlier if the cash flow is needed, or wait as long as possible to boost the size of each check.
The same reasoning applies to single clients in line for a pension after retirement. A married client might opt for a smaller benefit in order to provide a survivor's pension; a single client often can choose the higher payout.
"I recommend that single clients keep working to boost their earnings before becoming eligible for Social Security," Stone says. "That can increase their benefits. If clients will receive public pensions, their last three years of earnings may be used to calculate benefits, so they should beef up those earnings if possible."
Investing and retirement planning are obvious concerns for single clients, but late-in-life health care is widely regarded as the most pressing issue. An unmarried client may be especially vulnerable to illness or injury that curtails earned income. Single clients "need someone to step in for them if they are unable to manage things, either temporarily or permanently," says Carl Camp, president of Eclectic Associates, a financial planning firm in Fullerton, Calif.
"When you are on your own, with no one else to assist you, this can become a significant financial challenge," Lassus adds. "This means disability insurance and long-term-care insurance can be even more important. Disability insurance is vital because a single client doesn't have that second income to fall back on. Disability can also create a serious challenge to saving for retirement."
While disability insurance may be an obvious priority for a single client, that might not always be true for long-term-care insurance. According to Camp, single clients' need for this protection may actually be less than for married couples.
"We find the need for LTC insurance to be the greatest when one spouse goes into a nursing home and the other is healthy, living at home," Camp says. "Such a couple is adding a major expense without really reducing any of their other expenses. For a single person, a house could be sold and used to help fund the LTC need."
Stone notes that single clients are often renters, not homeowners, so selling a house to raise cash might not be an option for them. "Even if they own a home, they might not have enough home equity to cover several years in a nursing home or in an assisted living facility. In any case, most people want to stay at home, and long-term-care insurance can make that possible."
Erin Botsford, CEO of the Botsford Group in Frisco, Texas, and author of The Big Retirement Risk: Running out of Money Before You Run out of Time, agrees. "Buying long-term-care insurance would be my No. 1 recommendation for a single person. Most people do not want to become a burden on their families. Regardless of their financial status, single people should obtain long-term-care insurance while they are still able to qualify medically."
Beyond insurance, single clients might need to make other arrangements for care in case they become incapacitated. Lee gets lots of questions about living trusts. "A revocable trust can be created to hold assets. Then a co-trustee or successor trustee can step in, if necessary," she says.
Assets not transferred into the trust might be managed under a durable power of attorney. Camp typically suggests clients get a power of attorney from the financial institution that holds the assets. "Many institutions have a problem accepting a general purpose durable power," he says.
Joint accounts may pose their own peril as well. "We have been advised by attorneys that joint accounts are not the best solution," Camp says. "A joint account could be used to meet obligations of the caregiver if there was a legal action."
Beyond lifetime incapacity protection, estate planning for singles also must cover a client's death. "Challenges include identifying someone to serve as executor of the will," Lassus says. "Singles also need to name someone who can make health care decisions if they are unable to do so." Stone also focuses on health care issues with clients, suggesting to singles that they complete advance medical directives that include a living will, a health care proxy, authorization to release medical records and an organ donation card.
"The goal is to name someone who can make medical decisions if the client can't. I recommend naming one primary agent and two successors," Stone says. Clients might consider naming a reputable guardianship association if successor choices are lacking. The planner adds that, because she's not a lawyer, she refers clients "to websites where they can download forms. ... Then I tell clients they should plan to see an attorney to make sure these forms will be acceptable under state law."
Advance medical directives may be especially crucial for women, who typically live longer than men and may have costly health issues in their final years. "They realize they need to plan better than their married friends because they are alone," says Lee, whose seminars include Women & Money workshops. "Their biggest fear," she adds, "is being alone and homeless," no matter how much money they have now.
To address such anxieties, Lee suggests clients consider a planned move. "Retirement communities are good," she says. "In 55-plus communities, there may be other kindred souls and lots to do, with assisted living nearby if it's needed." Those communities frequently aren't happy choices. "Many folks, including singles, do not want to leave their support systems," she says.
Planners should determine if single clients live in what's known as a naturally occurring retirement community - neighborhoods or buildings in which a large segment of the residents have become seniors. "There may be services available to allow the elderly to stay in their homes," she says. An age-old solution is "siblings living together or close together for support as they age," Lee says. "No one wants to go into a nursing home."
Clients counted as single might not actually be single. "I'd also include couples who are going through the divorce process and same-gender couples on the list of singles," Stone says. "With the former, planning may focus on the spouses' future lives as singles; the latter might have the financial and emotional support enjoyed by many traditional couples, but not the legal recognition or the tax treatment."
For the newly widowed, financial plans will need a fresh look. "Once a person has been through the death of a spouse, typical financial planning does not work," says Theresa Harezlak, an advisor at Savant Capital Management in Rockford, Ill.
"Widows need someone who is focused on their current life and the one they will build, not the one they had. It is vital that a widow's financial plan remain flexible to accommodate this change in focus," Harezlak says. Flexibility is a key component of many financial plans, of course, but it's especially necessary for clients who find themselves flying solo.
Donald Jay Korn is a contributing writer at Financial Planning. His latest novel, In for a Pounding, is available on Kindle and Nook.