Single-parent households
In 2020, there were about 15.31 million children living with a single mother in the United States, and about 3.27 million children living with a single father, according to one analysis. In these families, caring for a dependent can be especially tough, because divorce often slashes a family’s income and assets, as does never partnering up in the first place.
Single parents are less likely to be saving enough for their own retirement and may be extra stressed by trying to save for themselves while wanting to help children pay for college. Alimony and child support may be insufficient to pay for major expenses like childcare during work hours, extracurricular activities, braces, and college because the original arrangements were made without the child’s long-term needs in mind.
What will happen to the child if the single parent becomes ill or passes away is the primary concern for single-parent households. So, a sole breadwinner should focus on disability planning and insurance.
To that end, the parent should establish an emergency fund and secure disability income insurance. The emergency fund is key because disability income insurance policies typically have a waiting period before making payments on a claim. The emergency fund can provide for living expenses before the disability income insurance policy’s waiting period is up and even while it’s paying benefits, since the insurance typically will only replace 50 percent to 70 percent of monthly income.
Life insurance is also a priority to help ensure children’s financial needs will be met if the parent passes away before they become financially self-sufficient.
Single parents must resist the urge to put saving for their children above saving for their own retirement because they have no spouse to help with retirement savings or retirement expenses and since the division of assets in a divorce may have taken a bite out of their retirement savings. Further, federal financial aid doesn’t count a parent’s retirement assets against a child’s college financial aid package.
One simple thing single parents can do to improve their finances is to file as head of household on their annual tax returns. This status will result in a lower tax rate and higher standard deduction than filing single.
If you feel as though things are particularly precarious as a single parent, keep this in mind: no family style is guaranteed to be stable. All families must create their own stability and recognize what they can and cannot count on.
Next, we will discuss Single person, living alone, with no children.