Financial Planning for Child-Free Couples: A Comprehensive Guide

Being child-free comes with its own set of unique financial considerations. While you may enjoy the freedom of sleeping in on Sunday mornings instead of attending soccer games, you also face questions about who will inherit your estate and who will care for you in your later years. This guide will help you navigate these important decisions and ensure your financial future is secure.

Who Will Inherit?

Without children, the responsibility of handling your estate falls on your surviving spouse or another designated individual. To make this process easier, it’s crucial to have an estate plan in place.

A will is the cornerstone of your estate plan. It guides the distribution of your property and names an executor to oversee your estate. This executor can be your spouse, a friend, an attorney, or a sibling. If you die without a will (intestate), your next of kin inherits everything, which is usually your spouse. However, laws can vary by state, so it’s essential to specify your wishes in a will. This document can also outline who inherits your assets if both you and your spouse pass away simultaneously. Without a will, the court will distribute your assets to your closest living relative, and if no relatives are found, your property typically goes to the state.

Assets co-owned with your spouse, such as joint bank accounts or real estate held in joint tenancy, generally transfer to your spouse even without a will. Some assets, like life insurance payouts and retirement accounts, are distributed based on the named beneficiary, not the will. While most people name their spouse as the beneficiary, this isn’t always the best option. If your spouse isn’t good with money, you might choose a trusted family member to manage the insurance payout or retirement account for them.

Who Will Take Care of You Later in Life?

Planning for later-life care is critical for child-free couples. Here are some key considerations:

Who Will Have Power of Attorney?

A medical power of attorney authorizes someone to make healthcare decisions for you if you’re unable to do so. A living will is similar but focuses on end-of-life care. Additionally, a financial power of attorney allows someone to handle your financial affairs, such as paying bills or taxes. Having these documents in place early on can provide peace of mind.

How Will You Pay for Health Care in Retirement?

Retiring before you’re eligible for Medicare at age 65 means finding alternative health insurance. Some employers offer health insurance for retired employees, and purchasing COBRA coverage through your former employer could tide you over until Medicare kicks in. However, COBRA can be expensive, so health insurance through your state’s marketplace or Healthcare.gov may be more affordable. Along with premiums, budget for copays, deductibles, and other medical expenses not covered by insurance. A health savings account (HSA) can help you set aside pretax funds for qualified medical expenses.

What if One or Both of You Needs Long-Term Care?

If you or your spouse become incapacitated, nursing home or home care costs could deplete your retirement savings. Medicare and private health insurance cover limited skilled nursing care but not long-term care. If you expect a low income in retirement, Medicaid may pay for long-term care. If you’re wealthy, you could pay out of pocket. For those in the middle, consider long-term care insurance, which covers skilled care and assistance with daily living. It’s expensive but can be worth the cost, especially since a semi-private room in a nursing home averages $7,908 per month. The Insurance Information Institute recommends purchasing long-term care insurance in middle age.

Where Will You Live?

Without children, you have the flexibility to choose a smaller home or apartment, reducing your living expenses. The quality of local schools isn’t a concern, potentially opening more affordable neighborhoods to you. According to December 2022 data from Realtor.com, buying a starter home in the 50 biggest US metropolitan areas costs approximately $800 more per month than renting a similar space. Besides a down payment and mortgage, homeownership also involves property taxes, homeowners insurance, and maintenance costs. Renting and investing the difference could deliver a similar return on investment while providing more liquid assets. Alternatively, use the money you save to build an emergency fund or pay down debt.

Can You Retire Early?

Raising a child to age 18 costs an average of $310,605, according to 2022 Brookings Institute research. What could you do with that extra $18,270 per year? Investing it in retirement accounts and other investments could make early retirement a reality. Whether you embrace the FIRE movement (financial independence, retire early) or gradually phase into retirement is up to you. The sooner you start saving, the more time your money has to grow. A nest egg of $1 million is often cited as a basic retirement goal. If you plan to retire at 65 and start saving at age 25, putting aside $232 per month gets you there. Waiting until age 45 means you’ll need to save $1,545 monthly.

If you plan to retire early, consider investing some funds via a brokerage account. Withdrawing money from a 401(k) or traditional IRA before age 59½ triggers income taxes plus a 10% penalty.

What Are Your Priorities?

Once retirement and healthcare concerns are handled, and you’ve built an emergency fund to cover three to six months of expenses, how else will you spend the money you’re saving on childcare and education? Do you want to travel, go back to school, or start a business? Identify your priorities and incorporate them into your budget. If travel is your passion, set up regular automatic transfers into a vacation fund and use travel rewards credit cards to earn free miles or hotel stays.

A Future of Freedom

As a child-free couple, your path to financial freedom likely looks different from the average person’s. Consider consulting a financial planner and estate planning attorney to tailor plans for your objectives. Whatever your financial goals, maintaining good credit can help you achieve them. Sign up for free credit monitoring to keep an eye on your credit score.

For any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074 to speak with one of our expert loan officers. We’re committed to helping you achieve your financial goals and secure your future.