Millennials are in no rush to get married. In fact, according to a study from the Federal Reserve Bank of St. Louis, fewer than 40 percent of millennials were married in 2016, versus nearly 60 percent of young adults who came of age in the 1980s.
That means more people are single when they start preparing for major financial milestones. After all, being single doesn’t mean you have to put off big goals like buying a home, planning for retirement or even having kids. You just have to plan a little more strategically for them.
“Having less income can be a challenge,” says Matt Shapiro, CFP®, a member of the Advice Practice team with Northwestern Mutual. “But being single also introduces more risk into your financial plan. If you’re part of a married couple with two incomes and one becomes disabled or loses his or her job, the other is still working. But if you’re single and lose your job, there’s no partner to pick up the slack.”
For that reason, financial planning for single people is not just about ensuring you’re careful about budgeting and saving — but also about making sure you’re planning for the things that can go right and those that could go wrong.
Here are some key life milestones and what you should know about preparing for them when you’re single.
BUYING A HOME
The benefit of buying a home while single is that you don’t have to compromise. If you fall in love with the cute breakfast nook at one place, no one will argue that the house with the great backyard was better.
But buying a home alone also presents challenges.
Saving for a down payment can be difficult with one income. But you can use it as an opportunity to test your ability to make the mortgage, insurance and tax payment once you buy a home. “It’s important to know that you can live within your means once you buy the house,” Shapiro says. “So, one way to save for your down payment is to set yourself up on a budget as though you were already paying the mortgage and taxes, and just save the difference between your future mortgage and your current rent as a down payment.”
You’ll also have to qualify for a mortgage based on just your income and credit score. So make sure your credit score is top notch so you’ll qualify for the best loan terms.
Finally, make sure you take care of two key financial planning considerations so that you’ll be able to make your mortgage payment even if something happens to you. “It’s really important to protect yourself financially by having disability insurance and an emergency fund in place before you buy a home. That way if you're unable to work or lose your job, you'll still be able to pay your mortgage,” Shapiro says.
If you’re interested in having children at some point, whether or not you’re coupled, you can do some planning ahead of time to help you be better financially prepared. For instance, if you believe IVF or adoption is in your future, it's important to understand the costs beforehand and plan for them, Shapiro says. Then once you have children, childcare is likely to be a major budget item — you may even consider moving closer to family members who could help with childcare, he adds.
In addition to your emergency fund and disability insurance, as a parent — and particularly if you plan to be a single parent — it’s crucial to add life insurance and an estate plan to your financial planning.
"It’s really important to have life insurance set up and estate planning done so that it's clear who will take care of your child if you can’t," Shapiro says. "Some single parents might even want to set up a trust so they can be more specific about how money is passed to the child. For instance, a trust might give the child a certain amount of money every year until they turn age 25."
If you don't plan to have kids until you meet someone, you can still start planning with disability and life insurance. Buying when you’re younger and healthy can help you lock in better rates over time. You can also start a 529 for your child before they’re born.
Because of the magic of compound interest, the sooner you start saving for a far-off goal like retirement, the better.
"While you only have one person's income to work with," Shapiro says, "you only have one person's expenses to deal with as well."
Make sure you’re contributing enough to get your 401(k) match if you have one through work. Beyond that, it makes sense to evaluate your options for saving for retirement in a way that is both tax advantageous and maximizes flexibility. For most, this might mean considering a traditional or Roth IRA. For others, it might mean contributing to an annuity or identifying how other assets — like permanent life insurance — might complement their retirement plan.
Shapiro also believes that it's particularly important for single people to consider the need for long-term care as part of their retirement plan since they won't have a partner who can care for them if they’ll need it down the road.
One thing all these financial goals have in common is that they could change dramatically if you end up with a spouse or long-term partner. But that’s not something to worry about.
"The nice thing about saving is that money and plans are flexible," Shapiro says. For instance, "if you're saving up for a down payment and then you end up not wanting to buy a house because you met someone who owns a house, that money can be used for other things."
That’s the beauty of planning early. You’re helping yourself prepare for life milestones without worry — but you’re also creating a cushion that can help you reach joint goals in the future if you end up with a partner.