Financial Strategies for Changing Families
It should come as no surprise that American family life has changed over the past four decades, but U.S. census data reveals just how widespread this change has been. In 1970, about 40% of households were married couples with children under 18 living at home. By 2012, only 20% of households fit this structure (see chart).
Although basic principles of budgeting, saving, and investing apply to all households, nontraditional families are less likely to feel financially secure than traditional families.1 Here are a few specific ideas that might be helpful for nontraditional situations.
Blended and Divorced Families
Set clear expectations for financial responsibilities. Well-defined guidelines might help avoid unnecessary conflicts.
College financial aid applications typically base their formulas on the parent who has primary custody. However, if you share custody with your ex, you might receive more aid if the parent with a lower household income fills out the forms.
Update your will and beneficiary designations to reflect your family situation. Be sure to take appropriate steps to provide for children from a previous marriage.
You may have to make hard choices to balance paying for your children’s college education and saving for your own retirement. Remember that children from single-parent households may qualify for a higher level of college financial aid than they might in two-parent households.
Have a current will that designates a guardian for your children and outlines other contingency plans. Life insurance companies generally will not pay a death benefit to minor-age children, so it’s important to identify a financial administrator for your estate. This person may be the child’s physical guardian or someone else.
Make sure you understand the laws of your state and local government, and the policies of your employer. Register your domestic partnership, if possible.
Define legal arrangements through appropriate documents. For example, your partner may need financial and health-care powers of attorney to make decisions on your behalf. If you own a house together, specify what happens in the event of a separation.
Maintain a healthy emergency fund and increase your retirement savings percentage. Without dependents, you should be able to save more; but without a partner’s financial contribution, you might need more savings for emergencies and a comfortable retirement than you would if you were married.
Be sure to have a will and other estate documents in place. If you die without a will, the state may decide who receives your assets.
Regardless of your household structure, you might benefit from professional guidance tailored to your situation. There is no assurance that working with a financial professional will improve investment results. But by focusing on your overall objectives, a professional can provide education, identify strategies, and help you consider options that could have a substantial effect on your long-term financial situation.