People who don’t have children aren’t getting the best financial advice, one author says.
There are more than a dozen differences in financial and estate planning for people with children and those without — but the financial-planning industry doesn’t address them separately, according to Jay Zigmont, founder of Childfree Wealth, a life- and financial-planning firm dedicated to helping childfree individuals. Zigmont, who himself doesn’t have children, is also the author of a new book, “The Childfree Guide to Life and Money.”
“There are assumptions and things built into the system that means, ultimately, childfree people are getting bad advice, or at least advice in the wrong direction,” he said.
Part of the problem could lie in how advisers make money. Individuals who don’t have children might want to spend all of their money while they’re living, while those with children could have bigger goals of leaving behind an inheritance. This clashes with one of the most common ways advisers make money in the financial-planning industry: the assets-under-management model. With AUM, an adviser’s compensation is a percentage of what the adviser is managing — so when the money in the account dwindles, so does the fee.
“How does that compare when someone is trying to die with zero?” Zigmont said. “There’s a conflict of interest.”
The right financial planner for a childfree individual or couple will acknowledge the nuances, Zigmont said. “Your planner needs to understand how things are different for you, and that’s a challenge to get good advice,” he said.
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Beyond the importance of money management is estate planning, which needs to be tended to immediately for childfree folks.
Zigmont spoke with MarketWatch about some of the most important aspects of planning for the childfree life, and how it differs from financial planning for people with children. This interview was edited for clarity and length.
MarketWatch: Can you tell me a few ways in which financial planning differs for childfree people versus those with children?
Jay Zigmont: It starts with childfree people living a different life path. We talk about going to school, having kids and working, then retiring. But they’re not living that path. We have to find what path they do want to live, and unfortunately that’s a bit of a challenge. No two childfree people live the same path. If you look at parents, the numbers change but it is somewhat a set order — these things happen after each other. Childfree people have to plan for life first, then finances.
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Often, childfree people don’t want to retire. Many of them have commonalities; they don’t have a priority to move money over to the next generation, and they don’t want to retire. In a classic sense, they’ll cut back on work and do different work, but it is not the classic “get the watch and retire.” It changes all of the assumptions financially.
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MarketWatch: How is estate planning different for people without children?
Zigmont: A huge question I often hear is around estate planning. What do you do about end-of-life planning, and what do you leave behind if you don’t have kids?
What impact do you want to make on the world? We won’t have a genetic impact, but as you talk to people, they want to have an impact on friends, family, charities, others. A lot of childfree people are charitably minded. If you give to charities, you get tax breaks — if you give when you die, nothing. If you do it while you’re alive, you can be a part of that charity.
We can give what’s left over to our nephews. The reality check is if we’re 90-something, they’re 60-something. They probably don’t need it then, so we have 529s for our nephews.
The challenge for my clients now is that they have to answer that question much earlier in life because if they don’t have a will in place, the state will take stuff. They look for the next of kin. The states don’t look too hard because they get to take whatever is left over; if they don’t find the next of kin, it is in their interest not to chase it down.
That’s hard for childfree people. Who will make decisions for me when I can’t? It is hard to find someone you trust. An attorney might do the financial stuff, but they won’t do the medical stuff. About 28% of people in the U.S. are disenfranchised from family. If you’re single, no kids, no family, it is hard to figure out the answer. Hopefully you have friends you can rely on. The “Golden Girls” system where friends live together works great, except for the last person.
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MarketWatch: What’s step one to protecting yourself when estate planning if you go the childfree path?
Zigmont: Get your paperwork done. Someone emailed me the other day, 70s and single, saying they put off paperwork and didn’t have an executor or power of attorney. They had a nephew but they haven’t talked in forever, and the question was, “Should I give him the estate?” That’s not a great solution. If he gets everything in the will, he may put you in the cheap medical service to protect your estate.
It is a big challenge. Who you give your money to is the easy one; it is who makes the decision, who is going to take your pets, who do I trust? What is the support structure? That’s why a lot of people don’t have estate paperwork in place. The number is 58% — they don’t have wills and power of attorney in place. When childfree, if you don’t make this decision, the government will make the decision — and nobody wants the government making decisions for you.