I had an interesting email exchange a few months ago when I first started sending out the WCI Financial Bootcamp emails.
Q.
How about a bootcamp for the single doc? (never married, no dependents)
A.
Is there some reason you feel the current bootcamp isn't applicable to single docs (aside from the section on life insurance)?
Q.
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.
A.
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.
Life Insurance
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.
Taxes
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.
Disability Insurance
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.
Job Selection
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.
Asset Allocation
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.
Loans
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.
Personal Lifestyle
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.
Investment Advisor
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.
Asset Protection
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.
Estate Planning
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!
I’m divorced with minor kid and know that there are some benefits I lose access to because of not being married (my biggest issue is my allowable 529 contributions are half of a married couple (and before you say that you can front load 5 yrs worth it still is half allowable because a married couple can do the same and channel double it).
I have an issue with that in particular because why does a child get penalized for having 529 contributions limited just because only have one parent (either death or divorce).
As for the original poster how confident is he that his status will never change? I’ve had female friends that said never will have kids and then get older and change their minds.
In my experience one 529 was sufficient. However, if you really wanted to put away more couldn’t your ex just fund another 529 for your child? I realize the relationship may not allow that sort of cooperation, but it seems a plausible solution to the scenario.
Yes.
I think it’s related to the gift tax limit. 529 contributions are essentially gifts (which is weird, because you actually still control the money and can spend it on what you want.) But I think that’s the reason.
Jim,
A bit off topic but I am seeing advertisements for “low cost” actively managed ETFs by Vanguard. What’s your take on these? I know the mantra has been that low cost mutual index funds will outperform actively managed funds majority of the time. Is it ironic that vanguard would promote this product?
Vanguard has always had actively managed mutual funds. Even Jack Bogle owns some shares of some of them (although he says he wouldn’t buy them now, just trapped by capital gains.) Just because Vanguard sells it doesn’t mean you should buy it.
I’ve noticed that some of our single clients with no dependents lack accountability. No spouse to hold you to your word. No kids watching and learning from your actions. Its pretty easy to skip this stuff when nobody is watching. Keeping your word with yourself is a challenging discipline. So I’d say learning that discipline and building in alternative accountability is important for this crew.
I disagree Daniel – I started my career life after my divorce from which I walked out with $0, no credit, only med school education. I lived frugally, as I knew I had no one to fall back on. I was doing FIRE without knowing it would become a “fashionable” trend that it has, So in 20 yrs, I have almost reached FI, but since I am still young enough, I prefer earning for atleast a few more years, in case I meet someone and decide to marry/buy a home etc with him, and that could derail my current FI number.
Should you at least get life insurance to cover any liabilities/debts you may have so that your family won’t have to cover them? I.e. credit cards (i know i know), auto loan, etc?
They will not be liable for these debts unless, say, your mom cosigned on your home loan for some reason. I would more likely tell my relatives to refuse to pay these debts should anyone ask them to do sothen to take insurance so that they could be paid for my creditors. However if you have a relative who is likely to feel honor bound or or badgered into doing so then making sure it isn’t from their own pocket is a nice thing to do.
Hopefully soon you’ll have more assets than liabilities that don’t go away at death. But your parents aren’t liable for any of your debts. Not the student loans. Not the car loan. Not the credit cards. They go against your assets, then if you have a negative net worth, your creditors get stuck with it.
I purchased a universal life policy (yes I know) some time ago with the intent of extinguishing the mortgage quickly in case of my death. There are IRAs, 401ks, 457s, and other investments which will pass eventually, but giving my mom info on the life insurance agent to take care of is quick and easy. I’ll probably keep it because it was purchased some time ago with a high minimum crediting rate.
Jim, good column. I find one of the biggest issues with divorced/single physicians is (as you mention) asset protection. In many states, a married couple using the “as tenants by the entireties” title have excellent asset protection from creditors suing just one of them (usually an auto accident or a malpractice suit). Single physicians are exposed.
We always start with a careful review of risk exposure-does the individual own a rental property in their own name, etc. Do they have their name on a relative’s car title, etc. Next we layer on plenty of liability insurance. We have used low cost no load annuities at time and also multi-member LLCs to shelter large investment accounts (a FLP would be similar), but worry about even a little about the protection that an LLC only holding investment assets might really have.
I would recommend that singles consider the possibility they will end up partnered someday (or a parent somehow maybe? Never know, you might decide to adopt during your midlife crisis or some unknown relative might’ve made you a guardian for their children in case they die and you feel unable to re fuse that responsibility ) and whether or not then they would want life insurance they might no longer qualify for, or disability insurance and retirement income that would take care of two people rather than just one.
My brother is a lifelong single, and when we talk money I ask him if he has any concerns about his recent live-in girlfriend (or her almost adult children) after his death. He does not; he feels she is no worse off than before they started dating and doesn’t feel it’s his responsibility to make her much better off financially because of it. He certainly not about to go back to salaried employee meant to do so. I also expect that his will leaves everything still to our less wealthy sister even though I would think it should go to his girlfriend. Of course it might not be that much money.
This is a thought provoking post. I was single with no kids during my peak earning years. If you are smart you can easily save enough to become FI at a young age. You can then go to part-time or fully retire.
Avoiding life insurance is a no brainer. Dementia worries me. You get use to higher taxes. It is easy to avoid estate planning.
I am early in my attending career and am single, without children. I think this post could spend more time on a real, though nebulous, concern about long-term or late-in-life care for the single person. What if I get dementia? What if I need live-in help or to go to a facility? How to save and plan for that is a real concern of mine as I make a financial game plan. Sometimes, facetiously I wonder if having a kid would be a way to further diversify my investment portfolio, and hedge against the ravages of old age. I do have a feeling that as time goes on and more people come across this issue, it will become a more prominent topic in the blog and print space.
This post came at the perfect time, as I have been a follower of WCI website here for about a year and now listening to podcasts on way to work and was thinking just this morning to email you, Jim, for some advice. I am a divorced, no kids, mid career female, in academic pediatric subspecialty which pays less than even pediatricians. However, my parents gave me $$ gifts over the past 20 yrs that I have been saving diligently in Fidelity and Vanguard and have been frugal with my expenses. My Fidelity representative at my meeting 4 mths ago told me I could retire now – but I am just doing my MOC in Oct and feel I don’t want to regret not taking them, as I want to do locums and start travelling. Also, I don’t want to continue living frugally when what I earn now can be cherry on the top of my current portfolio. However, locums are very hard to come by in most pedi subspecialties because of chronic illnesses that I see (mostly epilepsy). I have not bought a home (could not afford, moved a few times for academic jobs, etc) so my assets are all in Vanguard and Fidelity, and I have named a charity as my beneficiary in my retirement accounts and my younger sister (who lives across the country) in my non retirement accounts. So my biggest fears are: 1. Who do I put down in my Healthcare POA as executor? 2. How will the charity know I am dead 3. What if I have a fall out with my sister and then only have the charity as my beneficiary – who will do my funeral and distribute my assets to the charity? 4. Who will do my taxes, pay my bills etc after my death for the portion of the time I would have used them from the last tax time/bill periods and inform the companies to shut down my accounts? 5. What if I die while on my travels overseas?TIA
1. A friend or family member is the usual choice.
2. The executor of your will or the trustee of your living trust tells them. You can tell them that you’ve listed them in your will/trust too. Or if you’re really worried, give them your money before death.
3. You can pre-pay funeral expenses and hire a trustee/executor.
4. The executor of the will.
5. The executor follows your instructions and spends your money to fulfill them.
I think you should probably meet with a good estate planning attorney in your state.
Thanks for the advice Jim. I have started writing up these documents several times over the past few years and never get to completing them (was in a toxic job and concentrating on finding a new one, so did not want to change paperwork again or spend $$ on diff lawyers in diff states, but my sister who is my prim beneficiary knows all my wishes – she is also an MD, which is helpful.,,and she is on my checking account which has emergency finds to use for immediate bills/funeral expenses. I have to get this done legally soon – hard to find a good estate planning attorney, as I have only been in PA for 6 mths and dont have any friends I could ask for referrals
If I were single, and became demented, I would presume my nest egg would pay for that care. If it all gets spent, I’d then be on Medicaid. It’s actually a lot simpler for a single person because you don’t have to worry about your spouse spending the nest egg on LTC needs and leaving you destitute to live until 95.
How does one set up payment for an assisted living facility when you know you are dementing? I would rather take care of it myself than burden my sister who is my executor of my will – we live several states apart
I guess the best thing is let your sister know your wishes. Then all she has to do is wheel you on down to your chosen home and write them a check.
The problem is that the nest egg may not be there. One of the earliest symptoms of dementia is difficulty handling money. The big issue is how do you protect yourself from yourself? What good does it do to build up a big nest egg only to lose it to scammers who bilk me out of my savings before I (or anyone else) recognize there’s a problem with my thinking?
As a lifelong single, this is the planning issue that frightens me the most. Once my parents are deceased and I need to revise my will, I plan to meet with an attorney specializing in elder care to see what the options are.
on the recommendation for the condo, be aware of HOA fees, if you like to live in upscale areas, the HOA can run from 500-700 a month.
Slight disagreement regarding buying a house and thinking about school districts. You don’t need to think about the quality of schools for your non-existent children. However, if at some point down the road you do want to sell your house, school quality may be a factor in how easy it is for you to sell. It probably shouldn’t be the main characteristic helping you decide where to buy, but I would factor it in to any decision.
Caveat: I am single and I have purchased a few houses in places where I lived or planned to own for >5 years, and none of them are in great school districts. I thought about that when I bought each one, but there were other characteristics of the location of each property that I think will make each attractive when it comes time to sell.
Agree with many of the comments here. The one glaring oversight in this post is prepping for changes in status, which can sometimes happen quickly. Better to hedge your bets, just in case.
House: I’d tilt more strongly towards renting. A single person doesn’t need a house. What happens when a marriage or long term partner does come along? What if they too have a house? Neither house may be ideal, but at the very least one must be sold potentially in a down market, potentially before the 5 year mark. You could end up meeting that special someone the day after you close. Plus, it’s a lot harder for one person to adequately care for and clean a house than two; the biggest reason I don’t plan to buy another single family home. If buying something really small not adequate for a family, you may have a harder time selling as well; the market for such a place is smaller. Also on the topic; a single person may have more time and free capital to get into real estate investing. Even if just going the duplex route (live on one side, rent the other), not having family commitments frees up time that can be used productively.
Insurance: true, you don’t need much life insurance. A single doc should easily and quickly become self insured against funeral costs. However, if relationship status changes and you’re now older with some health issues, not opting for coverage while still young and healthy could turn out to be a mistake. Especially if still capable of having kids or meeting a partner with kids to provide for.
Taxes: a bigger issue than just filing single. The principles of maximizing tax deferred accounts is the same, but it’s all the more important when you’re in a higher tax bracket because you’re single (with fewer deductions as well). Suddenly a risky 457 plan becomes a more attractive option to shelter retirement money from a guaranteed 37%+ loss. Taxes while single in peak earning years will be the highest you’ll face, making tax minimizing strategies even more important.
Retirement: planning retirement savings (and current spending) around being single forever could be a huge mistake. Suddenly you get married, have or take on kids, and the early retirement spending level you were counting on goes out the window. Plus medical expenses until death potentially double. You let yourself spend more and save less planning to be single but now it’s too late to undo your past strategy- that money is already gone; time to head back to work. Instead, better to save like there’s no tomorrow, take every extra shift while you have the freedom to do so, and get to FIRE faster. Not loosen the purse strings because you don’t think you’ll need as much down the road.
Even if you’re against marriage or re-marriage, a long term live-in partner can come along at any time which is basically the same thing financially. I would advocate aiming for a FIRE number that would allow for these changes, and getting there as aggressively as possible while keeping expenses to a minimum. Over-saving and ending up single is a high quality problem; not planning for a different future than what you intended could be a huge mistake. Being single without dependents has advantages and drawbacks; better while single to leverage the biggest strength- the ability to keep expenses extremely low and save as much as you possibly can, while you can. And use your freedom and extra time while you have it to maximize income.
Can you talk more about planning for dementia? That is one of my bigger worries as a single person. How can I protect myself against myself? Against getting fleeced in my 80s or 90s? That has been the one thing keeping me with at least some sort of financial planning oversight. My kids are launching. I’ve got enough to live comfortably but not extravagantly. I have watched relatives make boneheaded moved in late life with no wiggle room. Other relatives have had to pick up the pieces. I don’t want that to be me.
I think a power of attorney +/- a trusted advisor are probably the best bets. You might also consider buying a SPIA- hard to screw it up if you’ve already traded it for a steady income stream, although I guess you could turn around and sell that stream.
Good post.
I wish there was more information about tax return for singles on this post, though.
Any information you’re specifically looking for?
In a situation like mine:
36 yo finishing residency, no kids, no med school debt and future employee in a hospital; it seems the only way to decrease the tax burden would be through:
– Max out 401k, 457b (18k +18k)
backdoor ROTH IRA ( it doesn’t decrease tax burden).
Should the rest of money be invested in taxable investing accounts?
no life insurance, no 529 (no kids)
No mortgage (since it is my first job…)
It seems I will be paying a higher percentage of taxes than a lot of high income doctors. Sounds weird.
Thank you for the post!
Yes, the tax burden can be particularly high. It gets really bad for a single employee doc in a high-tax state with limited employee tax-deferred retirement accounts.
Also, see if you can use an HSA qualified health plan and fully fund the HSA. Only money you will never be taxed on.
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.
These few sentences alone will save you tens of thousands of dollars as a resident and as an attending when it comes to the interest that you would otherwise be accruing on your loans. This is my plan and it is a great one. I highly recommend this to all residents and medical students reading this post
As a single early retiree, I think two major considerations I deal with that differs from a person with a partner and/or dependents is 1. healthcare and 2. withdrawal rate.
Healthcare: I can’t depend on a spouse for subsidized employee healthcare coverage. Thus I have to save more to pay for expensive coverage for many more years until Medicare kicks in.
Withdrawal rate: as I don’t have any dependents to leave my retirement savings to, I’m not looking to have a safe withdrawal rate that will leave the principal untouched. I plan to deplete some of it with the rest going to charities and a few loved ones. More of a nice bonus but not meant to support them for a long while.
You are also in the perfect position to consider putting all of your “fixed income” allocation into immediate annuities. you get a guaranteed and relatively high income return, and can use charities as the ultimate beneficiary if you pick some charitable annuities for the source.
Thanks for your suggestion. I have a gut reaction to not trust annuities but it may be based on ignorance. Will look into this. much appreciated.