Financial Safety Nets for Single Moms

Aaron Crowe | Life Insurance, Term Life Insurance | 16 Mar, 2015 | 1 Comment »

For a child with a single mom taking care of them, the odds of living in poverty are higher than they are in two-parent homes.

One in four children under the age of 18 are being raised without a father, and nearly half (45 percent) live below the poverty line, according to the U.S. Census Bureau.

Most of the single parenting done in the United States falls to mothers, who need financial safety nets to help keep them out of poverty and plan their long-term financial needs. More than 80 percent of the 12 million single parent families in the U.S. in 2014 were headed by single moms, according to Census data.

Here are six financial safety nets single moms can consider starting:

1. Financial reserves.

Whether it’s an emergency fund with easy accessibility for expenses such as new tires or home repairs, or a reserve of three to six months of expenses in case you lose a job, it’s a good idea to have some money set aside as a single mom for life’s emergencies, says David Mannaioni, an associate professor at the College for Financial Planning.

Some expenses are probably going to happen sooner or later, you just never know exactly when, Mannaioni says.

2. Insurance for single moms.

Life insurance, such as term life insurance to help take care of children until they’re old enough to be on their own, can help a single mom prepare her children financially if she dies.

Life insurance can be mandated in a divorce decree, Mannaioni says, requiring a single mom to insure herself for the sake of her children.

Single moms should also consider disability income insurance to pay them for a long-term disability — such as for five years — if they can’t work, he says.

For single parents earning $30,000 to $50,000 a year, depending on their goals and the number of children and their ages, basic life insurance needs can easily reach $500,000 to $750,000 or more, says Mitch Marsden, a certified financial planner at LumFi Planning.

“Making sure the children will have a home, basic living needs met, and funding for college, business pursuits or other opportunities later in life are all common goals for most parents,” Marsden says. “This usually means having more life insurance than one might expect.”

Term life insurance fulfills the need 95 percent of the time, but permanent life insurance may be a better fit in other cases, he says.

3. End-of-life documents.

A single mom should have a will to plan for guardianship of minors, advance directive and trust set up for her children, Mannaioni recommends. These and other end-of-life documents will make it easier for a family to deal with the death of a parent.

It’s important to list children as beneficiaries in a life insurance policy, and to name a guardian, recommends Andrew Mohrmann, a certified financial planner and founder of Modern Dollar Planning.

Without a named guardian, a judge could decide who cares for the children and how the money is used, Mohrmann says. The children might not be able to access the money until they’re 18.

Mohrmann says he worked with a family with three young girls who lost their father in an accident. He didn’t have a will, and the courts decided to put their life insurance proceeds into treasuries until they turned 18.

“Not only did the family not have access to the money for their care during their childhood, but they were forced to accept the paltry returns of treasuries,” he says. “Hundreds of thousands of dollars were lost because they couldn’t invest the proceeds in asset classes that would have generated much higher returns.”

4. Retirement savings.

Saving at least 15 percent of your salary and taking full advantage of a company match, if available, is a smart start to saving for retirement. Parents should consider Roth IRA options and services that automatically increase contributions should also be considered, says Judith Ward, a senior financial planner at T. Rowe Price.

5. Child support payments.

If a former spouse isn’t paying their fair share of the cost of raising their children, seek help from a lawyer, court or social worker to get the money you’re entitled to as a single mom.

“It messes with the budget when it’s late,” Mannaioni says. “Especially if you’re counting on it to pay the bills.”

6. People supporting you as a single mom.

It may not sound like a financial safety net, but having people supporting you as a single mom are just as good as having money to deal with some issues.

For example, having friends and family members who can step in as a backup for child care on days when kids are out of school unexpectedly (illness, staff support days when classes aren’t in session) can be more helpful than having to pay for child care help.

Even for single moms whose children are long out of the house, a financial safety net can be important.

A 2014 survey by T. Rowe Price on retirement spending found that retirees who aren’t married or living with a partner aren’t doing as well as their married counterparts, with more women (48 percent) than men (26 percent) living in single households.

They have less in investable assets when their home equity minus debt are compiled — $248,000 vs. $731,000 for married households.

They’re also more likely to be looking for work in retirement (19 percent vs. 11 percent) and more believe they’ll run out of money (again, 19 percent vs. 11 percent).

Aaron Crowe is a freelance journalist who covers the insurance industry and personal finance for a number of websites, including his personal finance blog at

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