Financial Planning for Singles

Achieving your savings goals may be easier than you think.

You may be surprised to learn that, according to the U.S. Census Bureau, nearly 50 percent of U.S. adults are single. In fact, there is even a National Singles Day celebrated each year in September. Regardless of whether you’re single by choice or by circumstance—such as divorce or death or a spouse or partner—planning your finances will be primarily up to you, so now is the time to get started. 

Last month in this column, I discussed how to protect yourself by managing risks. This month, I will discuss various ways to fund yourself. The good news is that finding the proper financial tools and strategies could be easier than you may think, provided that you obtain the right advice. Because everyone’s goals are different, though, there isn’t just one method that will work to pursue your short- and long-term objectives.

Strategies to Consider

Maxing Out Employer-Sponsored Retirement Plan(s) – One strategy for giving your savings a boost is to participate in and to contribute the maximum annual amount to your workplace retirement plan, where possible. Employer-sponsored retirement plans in many cases offer an employer match. This is “free” money.

Your employer’s retirement savings plan may offer two IRA options: traditional and Roth. With a traditional plan, the contributions will typically go into the account on a pre-tax basis. This means that you’ll be taxed on a lower amount of income for the years when you contribute, as your contributions will lower your taxable income. The earnings that take place in a traditional retirement account grow tax-deferred, meaning that there is no tax due on the gains until the time of withdrawal. This can provide the opportunity to compound the returns, especially in comparison to a fully taxable account (with all other factors being equal).

Even though you’ll have the tax-related incentives during the “accumulation” phase of a traditional IRA account, Uncle Sam will eventually want his money. So know that 100 percent of your future withdrawals will be taxed at your then-current income-tax rate (on the pre-tax contributions and growth), and you must begin taking distributions at age 72.

Roth IRA accounts work a bit differently. In this case, the contributions go in after-tax. But the growth that takes place in the account, as well as the future withdrawals, are all tax-free. This can provide you with more net spendable income down the road. There are also no required minimum distribution rules associated with Roth retirement accounts.

In some cases, investors may not be eligible to open a Roth IRA due to the income limits. However, by working with a financial professional who is well-versed in IRA strategies, there are methods that could be used for participating in a Roth account.

 Participating in a Deferred Compensation Plan – If you have access to a deferred compensation plan through your workplace, this can also help you put away more funds for the future. Deferred compensation plans withhold a portion of an employee’s pay until a specific date, such as retirement.

Funding and Maintaining an Emergency Account – Being single means that if you run into an expensive emergency—like a leaky roof or a fender bender—the cost to repair or replace will oftentimes fall solely on you. That’s why setting up an emergency fundis essential. This can avoid having to put these unexpected expenses on a high-interest credit card, and/or dipping into accounts that are earmarked for other things, like retirement. Many financial-planning professionals recommend that you keep between three and six months of living expenses in your emergency fund, and that you keep the money in a “safe” liquid savings or money-market account where it won’t be affected by stock-market volatility.

Setting Up Target Accounts for Certain Goals – If you are saving for a specific big-ticket item, such as the down payment on a home, setting up a “target” account can help. Here, too, you will usually want to keep these funds in a lower-volatility account like a savings or money-market account, particularly if these funds are intended for shorter-term goals. If you are saving for a house, you could fund this account with an amount that would match your future mortgage payment. This will help you “practice” being a homeowner as you figure out if this cash flow will be comfortable for you. 

Opening a Life Insurance Retirement Plan (LIRP) – A LIRP, or life insurance retirement plan, is becoming a popular way for people to access funds in the future on a tax-free basis. Using a certain type of permanent life-insurance policy, the cash value from a LIRP may be accessed via a tax-free loan rather than a taxable withdrawal. This loan can then be “repaid” using the death-benefit proceeds in the future. Life-insurance retirement plans can have several “moving parts,” though, so it is best to discuss your specific goals with a professional who is well versed in insurance strategies and can help design the right plan for you.  

Planning for the Future

As a single person, having a secure financial plan is a major component in attaining and maintaining a fabulous lifestyle, so it’s important to work with a qualified, experienced financial-planning professional, and ideally one who focuses on planning for the LGBTQ community.

How to Stay Gay, Single, and Fabulous 

Financial wellbeing can be a major component in attaining and maintaining a fabulous lifestyle for single people. It is important that you work with a qualified, experienced professional—and ideally one who focuses on planning in the LGBTQ community. 

This article appears in the October 2021 edition of OutSmart magazine.


Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.
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