I had an interesting email exchange a few months ago when I first started sending out the WCI Financial Bootcamp emails.
How about a bootcamp for the single doc? (never married, no dependents)
Is there some reason you feel the current bootcamp isn’t applicable to single docs (aside from the section on life insurance)?
No, not entirely. But I think in many ways the single w/o dependents with money will face most personal decisions from a different point of view: disability insurance, life insurance, rent/buy/car/house, type of job (military, locum tenens), retirement allocation, loans, personal lifestyle (creature comforts), need for “investment adviser“, beneficiary and other life-end documents. Even the location of one’s house (good schools), I certainly have a much different life than my married colleagues, whom I’ve watched intimately for 40 years. Therefore, in my view, a different personal financial orientation (expanded?) may be useful to this small cohort.
I’m not sure there’s enough there for a separate bootcamp, but it’s a great idea for a blog post.
This is that blog post.
What’s Different for Singles?
Let’s start with the obvious stuff. First, there is a wide variety of “single.” Divorced with minor kids, divorced with adult kids, divorced without kids, single with partner with kids, single with partner without kids, never married single without partner without kids, and never married single without partner without kids. We’re only going to talk about one of these today- and furthermore, we’re going to assume this never married single without partner without kids also has no other dependents – parents, cousins, nobody. The truth is that having this status makes most of your financial decisions a lot simpler.
Skip it. You don’t need it. If you have zero assets and you don’t want a pauper’s burial, fine, get a $10K 1 year term life policy. You shouldn’t need it in a year.
Student Loan Management
In residency, do REPAYE. After residency, if going for PSLF, switch to PAYE. If not working for a 501(c)3, refinance your loans and pay them off within 2-5 years by living like a resident. Sound familiar? It should. It’s the same plan a married doc with a non-working spouse should use.
File single. You don’t get the benefits of being married, but you also don’t face the various marriage penalties in the tax code.
You may actually need more of this than a married doc. There’s nobody else coming to the rescue here. So maybe buy a little bit bigger benefit than you would if you were married to another earner. The good news is it is still a matter of just buying enough to cover your living expenses (plus retirement savings). You don’t have to replace your entire income.
Buy vs Rent
If you don’t expect to change your social situation or your job anytime in the next 5 years, then buying makes sense just like it does for a married couple. The good news is that unless you get company frequently, you can probably buy a much smaller and less expensive house. Maybe even a condo. No yard required (unless you have a big dog or something.) Being in a condo might even facilitate additional travel or locums work that is easier to do without kids. You don’t need to worry about the quality of the school district when you buy either, which will let you spend even less on this major expense.
Speaking of locums, without a partner’s job tying you to one location or kids in school, you’re much more free to wander the world for your employment. Maybe that means military service or locum tenens. Or perhaps even just a specialty that allows shift work so you can travel more easily.
One nice thing about being single is you’re not accountable to anyone else for your asset allocation. You don’t have to come to an agreement with an overly conservative or aggressive partner. You can base your asset allocation entirely on your own need, desire, and willingness to take risk. Actually, you can be even more aggressive with a withdrawal rate in retirement than a married person because the chances of you living just as long as either member of a couple are lower.
You have to qualify for loans on your own merits, and may have a lower household income than a couple might have. No big deal. You shouldn’t be taking out very many of those anyway once you’re done with school and have obtained a mortgage.
I’m not really sure what to say about this one other than you don’t have to worry about paying for the personal lifestyle of anyone else. You want to be a cheapskate? Great. You want to spend more? That’s great too. Just make sure you’re saving enough to pay for retirement as you go along. You should be able to spend dramatically more than your traditional family peers. Even with a higher tax burden, you’re spending much less on housing, nothing on life insurance, nothing on kids, not saving for college, and saving less for retirement (since there will only be one to support.) You ought to be able to buy a pretty nice life on a physician’s salary, even after paying for taxes and retirement.
There isn’t a huge difference here, other than you only need to find someone you like rather than someone both of you like. Some couples have an investment advisor because only one of them is interested in managing money and the advisor is the backup plan for the other spouse. But even a single person should consider having a backup plan. You need some way to protect yourself from your own dementia.
Retirement Spending Strategy
A single person should be much more likely to use a Single Premium Immediate Annuity (SPIA) or a reverse mortgage. Why not? No spouse to support after your death and no kids waiting for your inheritance. Plus, there is a little extra protection there against market downturns, being a spendthrift, and your own dementia.
There are a few strategies that aren’t available to singles- like putting the boat in the spouse’s name and titling your house as tenants by the entirety. In addition, it’s a little harder to get a multi-member LLC and to use a Family Limited Partnership.
Here is where things get much more complicated for the single person. You can’t just do a simple “I love you” will where it all goes to your spouse and then is divided among your kids after that. You’ll actually need to decide which friends and family members get what or you’re likely to have all of your assets end up in the hands of some distant cousin. A general power of attorney and a health care power of attorney are also critical. A living will, which I’m normally not a huge fan of, is an awfully good idea. Cheap and easy too. You may not care as much about whether your assets go through probate, but if you do, you can still use a revocable trust and beneficiary designations to avoid the process. It is probably a good idea to make sure the beneficiaries of any insurance policies or investment accounts know about it!
Estate taxes might be a little trickier issue. You don’t get to double your federal exemption amount automatically for instance. And you can only give away half as much money per year to a given person. But most estate tax strategies aren’t significantly different for singles. Perhaps you would be more likely to use a charitable trust for retirement income.
What do you think? What did I miss? What other financial issues do people without a partner approach differently? Are you single? How have you dealt with these issues? Comment below!