Over 25% of my clients are single adults or couples who are preparing for one spouse to live much longer than the other. I spend a significant amount of time assisting them with the unique issues they face. Like all of us, they want to wisely invest their money, mitigate taxes, take care of their heirs, protect their wealth, and maximize the effectiveness of their charitable gifts.
Many of the tools and techniques we use for each of these goals are common for both married and single adults, but there are times when slight variations or entirely different approaches will work better for singles. I plan to address each of these areas for single adults in future blogs, but for now I want to take a step back and talk about two foundational choices that are key to success in all the other areas – simplifying your financial life and building a good financial team around you.
SIMPLIFY YOUR FINANCIAL LIFE
I’m currently working with several couples, including my parents, who, due to aging or health circumstances, are facing the prospect of one spouse passing away much sooner than the other. Working through the emotional aspects of losing a spouse can be overwhelming. Inheriting a complex and confusing financial situation is likely to compound the stress of an already difficult situation. Family members, counselors, and faith-based communities are helpful aids through the grief journey, but often don’t have the expertise needed to help the surviving spouse navigate finances that used to be handled by their partner. Someone passing is never easy. Outlined below are important ways to make the financial transition simpler:
Create a Master Document
List every finance-related account you have (bank, investment, insurance, pension, credit card, etc.) as well as the information associated with those accounts:
- Contact information
- Location of original documents
- Account numbers
- Online usernames and passwords
Create a separate master document that lists all non-financial online accounts with usernames and passwords (i.e., email). Update all lists multiple times per year, include a revision date, and shred previous versions. Practicing these tips will help to avoid roadblocks in the future.
Consolidate Duplicate Financial Accounts
Retirement Accounts
- Try to consolidate down to one IRA (and one Roth IRA if applicable) per spouse if possible.
Investment Accounts
- One jointly owned account is generally sufficient for all non-IRA investments unless separate accounts are needed for estate planning purposes.
Bank Accounts
- Combine scattered bank accounts into one bank with a local branch near home.
Credit Cards
- Only keep one or two that have the highest credit limits and best features.
Automated Bill Paying
If your spouse isn’t the one tracking and paying the bills each month, significantly reduce their stress and the risk of missing critical payments by utilizing automated payment options through the vendors or through your bank’s bill payment system. Having all monthly income (pensions, social security, IRA distributions, etc.) deposited to the same checking account that you use for automated bill payments will reduce the chance of missing an important payment due to insufficient funds in the account. I also recommend paying all bills directly from a bank account rather than using a credit card; credit cards expire and are reissued every couple of years, and this can result in confusion and payment defaults if the card information isn’t updated with each vendor.
The techniques discussed above will set a solid foundation. for your spouse as they navigate life ahead. Further protect your spouse by surrounding them with a team of financial experts as a source for financial help and guidance. Building a financial support team is critical.
BUILD YOUR TEAM
Common team members for single adults often include financially savvy family members or friends, an attorney, a CPA, an insurance agent, and a certified financial planner who can provide an overview of your finances to verify that the advice and services from each team member work together toward a common goal rather than conflict with each other.
Ideally, the surviving spouse will not only know who their team members are, but they will have the reassurance knowing a trustworthy relationship was built through meetings with each of them. However, if a team wasn’t established ahead of time, single adults should assemble their own trusted team to walkalong side them not just through the transition period but to guide them through all future endeavors.
Each member of your team must have the following 4 C’s
Chemistry
- If they aren’t a good personality fit or you’re not comfortable working with them for some reason, then they’re probably not the right choice.
Character
- Look for team members who you can trust, and who will hold themselves to a fiduciary standard of always putting your financial interests ahead of their own.
Competence
- Working with credentialed professionals is a safe way to verify some level of competence, but a family member or friend with financial knowledge and experience can often handle some of the roles or even help you interview the professionals you are considering working with.
Capacity
- There are some people who would be great members on your team based on the first 3 C’s, but if they don’t have enough room and flexibility in their schedule to provide timely assistance when you really need it, then keep looking.
Family and friends often seem like ideal choices based on the first two C’s (chemistry and character), but if they don’t fully check the boxes for competence and capacity then you need to add credentialed professionals to your team. Unless you are still in the prime earning years of your career, you can’t afford to make significant financial mistakes or miss important opportunities.
Lastly, make sure your team has some backups identified for each role, especially if you are relying on family members and friends. This is especially important when drafting legal documents, such as powers of attorney and your will. If you’re going to list a person as your power of attorney or your personal representative (also known as an executor or executrix), always list at least one alternate person or a Trust company who can step into that role if your first choice is unable or unwilling to act in that capacity.
Life is uncertain, so it’s never too early to begin planning for financial life as a single adult. With a master list of account information, fewer financial accounts, automated bill payments, and team members that meet the 4 C’s, financial stress can be minimized and the odds for a lifetime of success dramatically improved. As always, if you should have any further questions, please contact an advisor at HFG Trust.
Financial Advisor
