Financial planning for retirement usually starts with a number: how much you need, and by when. It should start with what you actually want your life to look like. The Math of One looks at choices driven by one income, whether you’ve never married, are divorced, or are the sole earner in your household.
Building a solid financial plan around your priorities means the key question is bigger than the standard “whether you’ll have enough” for retirement.
What do you have in mind for the next five years, your 50s, 60s and 70s? Will the money you have and the money you continue to earn support the life you have in mind? Which choices become available at different points along the way?
Aiming to travel extensively changes the numbers, as does keeping your current home, downsizing, moving somewhere more expensive or maintaining two residences to live a “snow-bird” lifestyle. The same applies to leaving a demanding career, continuing to work because you enjoy it, giving money away, investing in a business or spending more during the years when you expect to be doing the most.
The choices included in the plan will inform spending, savings and investment targets, which might vary each year. If you want to travel extensively for ten years, maintain two homes for part of your retirement or make a major purchase at 60, putting those plans on paper will clarify what’s required and how these choices affect everything else.
By midlife, there are a number of expected and familiar milestones: a retirement number, a healthy investment portfolio, enough cash to handle the unexpected, a plan for Social Security and a general idea of when you want to stop working. While your choices create a target, and sometimes it’s a moving one, hitting the goal as a solo earner means running the numbers behind the checklist differently.
In The Math of One, most of the calculations change, and one of the biggest is concentrated income risk. If you’re the sole earner in your household and your income stops, 100 percent of the household’s earned income stops with it. That makes the standard three-to-six-month emergency fund an interesting number to question.
How long would it take to replace your income at roughly the same level? At 45, that answer can look very different for a corporate executive, a physician, a freelancer or the owner of a company. The answer is also likely to be different at 50, 55 and 60.
The number that matters most is the amount of time your cash and other readily available resources can buy without forcing another financial decision before you’re ready to make it.
Disability coverage is another part of the calculation. The percentage of income a policy replaces, how long benefits last and whether coverage follows you when you leave a job are all pieces to consider. If leaving a corporate position, starting a business or moving into consulting is on the agenda, employer-sponsored coverage is one of the benefits worth pricing into the decision.¹
Retirement plans introduce another set of calculations for the Math of One.
Fidelity’s widely used benchmark puts retirement savings at six times your salary by 50 and eight times your salary by 60.² This offers a quick number for comparison, but a personalized solo retirement plan needs to determine how much income accumulated assets can support over the years post-retirement.
Accumulated assets, projected spending, Social Security, taxes and longevity all feed the same retirement-income calculations. Running the numbers at different ages can produce a more useful midlife milestone than whether you’ve hit the savings benchmark above: the date your current level of earned income is no longer required to support the plan. Knowing when you’d essentially be free to move on, e.g. with the option to leave a corporate job, step down as the head of your company, move into consulting, work fewer days, or retire is a key piece of information.
Social Security is part of the retirement numbers. For someone who never married, the calculation is based on your own earnings record and the age you choose to claim. If you’re divorced and your marriage lasted at least ten years, it is worth running the numbers under both your own earnings record and the rules governing benefits based on a former spouse’s record. Survivor benefits can also apply after divorce.³
For either, claiming age is a financial lever. Benefits can begin at 62, increase with later claiming and reach their maximum at 70.⁴ Running those numbers alongside portfolio withdrawals, taxes and other retirement income shows how each claiming age affects the larger plan.
Taxes become particularly important when the plan starts moving from accumulating money to using it. A Roth conversion, the sale of appreciated investments or a withdrawal from a traditional retirement account all add taxable income in different ways, making the amount and timing of income from year to year part of the Math of One.
The years between leaving a high-earning position and taking Social Security or required minimum distributions can create room for Roth conversions, realizing capital gains or taking money from your taxable and tax-deferred accounts. Each decision can be measured against the tax brackets and Medicare income thresholds that apply to a single filer.⁵ Coordinating those decisions across several years can reduce the amount you pay in taxes over the course of retirement.
Long-term care is another place where the assumptions behind the plan can substantially change the numbers. The financial calculation needs to include the amount of paid care your assets and insurance are intended to support, along with the effect that expense would have on the rest of the portfolio.
By midlife, that calculation can be run against several levels of care and several lengths of time, using current costs as the starting point and accounting for future increases. The result becomes part of the retirement target rather than an expense considered separately years later.
There’s one more part of financial planning that’s about authority rather than accumulation.
A durable financial power of attorney, healthcare proxy and the people or professionals responsible for administering an estate need to be selected rather than assumed. In some states, a spouse has automatic legal standing to make medical decisions and may have default rights to an estate without any paperwork in place. Someone who isn’t married shouldn’t assume the people they’d choose will have that authority; explicitly naming them is part of the process.
The person given authority needs enough information to act, understand where accounts and records are held, and have whatever access the documents are designed to provide.⁶ These appointments don’t need to go to the same person; financial affairs, healthcare decisions and responsibility for an estate can be assigned according to the people best suited to each.
The Math of One doesn’t require a separate version of every familiar financial milestone. The differences are concentrated in the places where one financial unit changes the calculation.
There are useful numbers alongside the familiar question of how much you’ve accumulated: how long your resources can carry the plan through an interruption in income, when your current level of earned income is no longer necessary, how different Social Security claiming dates affect your plan, how taxes will affect your retirement income, what the life you want will actually cost, and how much capital you want available for care.
In the Math of One, those are the numbers that tell you what your financial position actually allows you to do in the future.
This article is for general informational and discussion purposes only and does not constitute financial, tax, legal or estate planning advice. Consult a qualified professional before making decisions based on your own circumstances.
Footnotes
- Disability insurance coverage varies by policy, including the definition of disability, percentage of income replaced, benefit period and portability. Employer-sponsored coverage can end when employment ends.
- Fidelity Investments uses retirement savings guideposts of approximately six times annual salary by age 50 and eight times by age 60, with individual targets affected by retirement age and expected spending.
- Social Security Administration rules allow qualifying divorced spouses to receive benefits based on a former spouse’s earnings record when the marriage lasted at least ten years and other eligibility requirements are met. Separate rules govern survivor benefits for qualifying divorced spouses.
- Social Security retirement benefits can begin at age 62. Monthly benefits increase with later claiming and reach their maximum at age 70.
- Federal income-tax brackets and Medicare income-related premium thresholds vary by filing status. Roth conversions, realized capital gains and withdrawals from tax-deferred retirement accounts can affect taxable income and, at applicable income levels, future Medicare premiums.
- Powers of attorney, healthcare directives, executor and trustee appointments, and the authority granted under those documents are governed by state law and the terms of the applicable documents.
Estimated reading time: 8 minutes
