Retirement Planning And The Single Person
Lets face it, not everyone gets married. And, not everyone who gets married stays married. However, in the world of retirement planning advice, I have noticed the single person is often ignored. And, the fact is, if you are single, you will eventually retire and youll face a multitude of different challenges than couples do.
I acknowledge that unless someone is consciously dedicated to the single life, no one knows for certain whether they will be single for the rest of their lives. But, when it comes to planning for retirement, starting as early as possible, whether you ever get married or not is a key to success.
With A Single Income, Accumulating Wealth Can be Doubly Hard
Typically today both members of married couples work and have their double incomes to help them save for retirement. However, as a single person, you have just one income giving you less money to sock away toward retirement. You may only be able to save half as much or less, as your married counterparts. One of the first things to address is to start and save a greater amount in your tax-deferred accounts. Youll also need to build a larger emergency savings account than would a two-person income household since you do not have anyone else to lean on in the event you lose your job, or have an extended illness.
Positive Aspects of Singles Saving for Retirement
Lesser Need for Life Insurance, Greater Need for Long-term Care Coverage
How Much Savings Will You Need To Retire
Now let’s determine how much savings you’ll need to retire. After you’ve figured out how much income you’ll need to generate from your savings, the next step is to calculate how large your retirement nest egg needs to be for you to produce this much income in perpetuity.
So, if you have $1 million saved, you would take $40,000 out during your first year of retirement either in a lump sum or as a series of payments. In subsequent years of retirement, you would adjust this amount upward to keep up with cost-of-living increases.
The idea is that if you follow this rule, you shouldn’t have to worry about running out of money in retirement. Specifically, the 4% rule is designed to make sure your money has a high probability of lasting for a minimum of 30 years.
To calculate a retirement savings target based on the 4% rule, you use the following formula:
Retirement savings target = Annual income required x 25
Continuing our example, we saw in the previous section that our couple would need $4,000 per month from their savings. So, in this case, our couple should aim for $1.2 million in retirement savings accounts, such as a 401 plan or individual retirement account , to provide $48,000 per year in sustainable retirement income.
Powerful Tips For Retiring Alone
Sometimes it feels like the world is designed for couples. People throw dinner parties for couples. Most forms ask about your spouse. And, lets face it, retirement, and aging an era when youll sometimes need a helping hand can feel kind of scary on your own.
Whether by circumstances or choice, the U.S. Census Bureau has documented that there are more than 20 million unmarried U.S. residents age 65 and older. And, Pew research estimates that 27% of adults 60 and older live alone. These aging solo adults are often referred to as elder orphans or solo seniors.
Those numbers are likely to increase. While being single was once stigmatized as a lonely or unhappy state, times have changed, and more and more people are staying single and societal norms are becoming more open to all kinds of different ways of living.
Women especially are living alone in greater numbers. The Administration on Aging found that 37% of women in the U.S. over 65 live by themselves, are happy about it, and wouldnt want to live any other way.
Nonetheless, there are some challenges to retiring alone. Here are 17 tips for navigating retirement on your own:
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How Much Do I Need To Retire Comfortably
How much money do you need to comfortably retire? $1 million? $2 million? More?
Financial planners often recommend replacing about 80% of your pre-retirement income to sustain the same lifestyle after you retire. That means if you earn $100,000 per year, you’d aim for at least $80,000 of income in retirement.
However, there are several factors to consider, and not all of this income will need to come from your savings. With that in mind, here’s a guide to help calculate how much money you will need to retire.
It Can Be Harder To Save When Single
Because the cost of running a household is similar, people living on their own spend an average of 92% of their disposable income on everyday costs, while two-adult households who spend only 83% of theirs 1. There might also be unexpected extra costs for single folk, like paying for tradespeople DIY tasks are often a two-person job or simply living more footloose and fancy-free. That means it can be trickier to put money into pensions and investments, even though it could be more needed. So
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Couples Vs Singles: How Retirement Planning Differs
Allworth Co-CEO Scott Hanson shares a few ways married couples have distinct advantages when saving for retirement.
Your portfolio construction, diversification, and time horizon.
Be ye single, or be ye married, while there are aspects of planning for retirement that arent necessarily impacted by your relationship status, there are some key differences that I believe its beneficial to understand. After all, familiarizing yourself with the planning process adds perspective.
For instance, while to retire well, a single person must save more money than either member of a partnership must save individually, partners typically must cumulatively save more.
Theres also something of a savings enthusiasm gap between married and single people. Case in point, as of 2018, 43% of singles were actively saving for retirement, while more than 63% of married people were. 1
Logistical. Legal. Legislative. As youll see, besides mere numbers of savers, when it comes to saving and planning for retirement, couples have advantages.
However, these advantages are not entirely due to enthusiasm. Case in point, two people are just more likely to have access to an employer sponsored defined contribution plan ) than one person.
What are some other differences between retirement planning for single people versus duos?
How A Keogh Works
Keogh plans usually can take the form of a defined-contribution plan, in which a fixed sum or percentage is contributed every pay period. In 2021, these plans cap total contributions in a year at $58,000. Another option, though, allows them to be structured as defined-benefit plans. In 2021, the maximum annual benefit was set at $230,000 or 100% of the employees compensation, whichever is lower it rises to $245,000 in 2022.
A business must be unincorporated and set up as a sole proprietorship, limited liability company , or partnership to use a Keogh plan. Although all contributions are made on a pretax basis, there may be a vesting requirement. These plans benefit high earners, especially the defined-benefit version, which allows greater contributions than any other plan.
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Average Retirement Income By State
Data released by the U.S. Census Bureau shows the average retirement income in every state. Weve listed the averages for each state based on region. To get a better look at retirement income in the U.S., we also broke down which states have the highest average retirement income and the lowest.
What Is A Good Retirement Income
According to AARP, a good retirement income is about 80 percent of your pre-tax income prior to leaving the workforce. This is because when youre no longer working, you wont be paying income tax or other job-related expenses. However, this number can change based on a variety of factors, including your:
Statistically speaking, your income slowly decreases as you age, as shown in the chart above. This is due to several factors one being that most people arent making money during this period, but rather spending their life savings.
Another prevalent factor for the decrease in retirement income is the long list of retirement risks that arent considered when planning for this phase of life. This includes taking into account a longer lifespan, costs of healthcare, long-term care and inflation.
So although it makes sense that your income would slowly decrease if you werent making money, youre likely to need more money as you age and as your health declines. This is something to consider when you begin withdrawing retirement funds and as you make plans for your retirement years.
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Review Your Estate Planning Decisions
Another item to make sure you’ve got covered as a single person is drafting a will or a living trust, spelling out your wishes for what happens to you and your assets after you’re gone. Without a will, the laws in the state where you reside determine those decisions.
Along with your will, you’ll need to choose the executor of your estate, also known as a personal representative, depending on the state in which you live. This is a different function from a POA. Where a POA has the legal authority to act when you’re living but not in a position to choose, the executor handles your finance and ensures all your estate and financial matters are taken care of once you pass on.
Lastly, if you haven’t done so yet, be sure you’ve designated your beneficiaries on your retirement accounts. Talk with your advisor about this, since new rules passed by Congress have limited or eliminated the “stretch IRA” in some cases.
Build A Team Including A Vast Social Network
The curmudgeon who lived down the street was a standard character in movies and sit-coms throughout the 60s and 70s.
But the thing is, being a lonely curmudgeon is a drag. Thats because, sooner or later, virtually everyone needs some help.
Sit down and make a list of the people you could rely on to drive you to an appointment if you needed a ride.
And if after 10 minutes of trying, you find your list of reliable friends is looking a little sparse?
Spring into action. I think youll find that, if you make yourself available, friendships will make themselves available to you.
If you are fortunate enough to live a long, independent life, in a home of your choosing, thats great!
But its never too early to build a vast support team and social network.
And besides, studies have shown that people who have strong social bonds live longer, healthier lives.
If youre single and your friendship tree is looking a little barren, I implore you to sprout some new branches: Youll be glad you did.
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Define And Communicate Your Plan In Case Of A Long
69% of Americans will need long-term care, even though only 37% think they will, according to SeniorCare.com.
While it is really not a great plan for anyone, many married couples expect that they will be able to care for each other in case of a long-term care event. This is simply not the case for someone who is single. It is therefore extra important that you figure out how you want to be cared for and how you are going to pay for it.
A long-term care policy might be something to consider. In the NewRetirement retirement planning system, you can try different scenarios for dealing with a long-term care event.
Seek Support If You Are Concerned
You might be alone, but that doesnt mean you dont need support. Here are a few resources that might be useful to you:
Join a Facebook Group for Single Seniors: The is for people who are over 55, without a spouse, and without nearby children. The page is designed to let members exchange ideas and find answers to questions they have.
Start a Club: Want a network of single seniors closer to home? Start your own club! Invite everyone you know who is single and around retirement age and meet weekly or monthly.
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Unmarried Heres How To Plan For Your Retirement
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If you’re one of the millions of pre-retirees who is heading solo into retirement, youâre definitely not alone.
The U.S. Census Bureau reports that 19.5 million U.S. residents 65 and older are unmarried.
And while not all unmarried adults identify as single the data reveal that single retirees are a growing demographic.
Often, retirement planning information is geared toward married couples, but that is starting to change now that the retirement landscape looks significantly different than it did over a generation ago.
Retirement planning can feel overwhelming as it is, regardless of your relationship status. So whether you’ve never been married or are divorced or widowed, here are some factors to consider as you look ahead to your own retirement future.
Estate Planning For Singles
Estate Planning is not just for married individuals. In fact, more and more estates are those of single people. A single person has estate planning considerations different from those of a married couple and actually might require more planning. Because the unique estate planning concerns of singles rarely are discussed, singles often make key mistakes in their estate plans.
A single person, of course, has no marital deduction. A married person always can avoid estate taxes by leaving everything to the spouse and letting the spouse worry about estate planning. A single person also is limited to the $10,000 annual gift tax exclusion. There is no $20,000 exclusion for joint gifts made with a spouse. In addition, there is only one lifetime estate and gift tax exclusion to work with instead of two.
These disadvantages make lifetime gifts more important. Single persons need to identify the objects of their affections early and make the maximum annual gifts they can afford. Otherwise, the property will remain in their estates and be depleted by taxes.
Thats one reason single people might make more use of trusts than married couples. By giving early and not being able to use a marital deduction, the single person often has to give money to younger people before they are ready to handle the responsibility. That means using trustees to manage the property until the beneficiaries are ready.
Single people often make two mistakes that cost their loved ones money.
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Federal Insurance For Private Pensions
If your company runs into financial problems, you’re likely to still get your pension.
Insures most private-sector defined-benefit pensions. These are plans that typically pay a certain amount each month after you retire. These are single-employer plans. Multi-employer plans have different coverage.
Covers most cash-balance plans. Those are defined-benefit pensions that allow you to take a lump-sum distribution.
The Cost Of Singlehood
To help make things easier, in this issue Ill review what it costs for singles to fund their retirement and discuss the special challenges they face. Ill describe the experiences of three retired singlesone with a modest middle-class budget and two with more affluent means. While their budgets vary, all three have achieved a comfortable lifestyle that meets their aspirations.
First, lets look at the cost of a middle-class retirement lifestyle. In my view, a single retiree should count on spending about $30,000 to $50,000 a year including taxes, assuming you own your home and have no debt. The lifestyle you can expect will vary by locale: your money will go farther in small towns than in big cities, with their high property taxes and high cost of living, points out Annie Kvick, a certified financial planner with Money Coaches Canada in North Vancouver.
This compares with my spending estimate of $42,000 to $72,000 for retired couples living a comparable middle-class lifestyle . The figure for couples isnt twice the figure for singlesits only about 40% higher because spouses are able to share costs for things like housing and cars. The higher per-person income singles need also results in higher taxes. Based on B.C. rates, for example, a single senior with $50,000 in taxable income can expect to pay more tax than a senior couple with $70,000 in income that is equally split.
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How To Plan For Retirement As A Single Person
The single life has its advantages but can also come with very specific financial challenges. Singles get fewer tax breaks and may have to rely only on themselves, without earnings from a spouse. Many of the savings building blocks are the same for both couples and singles, but there can be more to retirement planning for those going through it on their own. Here are some ideas to help you plan for your future when you’re doing it alone.
1. Calculate Your Needs
The first step in planning for retirement, as with most goals, is knowing what you are aiming for. You can use a retirement calculator to figure out how much you need to save for a secure future. This takes into account your income, location, Social Security election age, birth year, marital status and more to gauge how much you will likely spend each year to lead the lifestyle you want in retirement. If you have bigger plans, like traveling the globe or starting a business, you can adjust accordingly. Remember that as a single person you will need to provide these funds yourself, unless you plan to work in retirement or inherit from someone.
2. Make a Plan
With a goal number in mind, it’s time to figure out how you can make it happen. It’s a good idea to think about all of the income sources you will have in retirement, from your 401, an IRA, a Roth IRA, Social Security retirement benefits or pension. You will be doing this on your own, so it’s important to consider all of your options.
3. Save, Save, Save