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Retirement Planning for People Retiring Single

Retirement planning for single people has its own unique set of challenges and opportunities.  Maybe you are a widow (widower), divorced or you never got married. While it’s true that in some ways retiring single is less complex, it is also true that other aspects are more complex.  

Let’s look at some of those unique challenges and opportunities.  It is important to note that there are many items to consider in your planning regardless of your relationship status.  Those types of items are not covered in this article, but are addressed in this webinar.

Download 9 Mistakes To Avoid When Retiring Solo

Estate Planning

I usually start new client meetings with estate planning because it can be depressing and everybody wants to get it out of the way.  Many aspects of estate planning, from medical decisions to inheritances, default to your spouse if something were to happen to you. If you don’t have a spouse, things can become considerably more complex.

Let’s take the health care power of attorney for example.  Without one, a doctor may tend to defer to the spouse on medical decisions.  But without a spouse, let’s say you have multiple children and they disagree on the right decision.  How would the doctor proceed? An Advance Directive, and solid communication with your kids can help avoid this scenario.  

Don’t have any children? You may need to name a professional trustee or agent-in-fact to make these types of decisions.  This will commonly be an attorney who has a legal responsibility to act in your best interest.

It’s very common to see single retirees place their kids as joint owners on different accounts for the sake of convenience.  However, this can cause significant liability issues (your money going to your child’s ex-spouse?!?) and tax issues if the account has assets that can appreciate.

The majority of families in the US are blended families.  If you plan to get married and become a blended family, it is shockingly easy to disinherit your children without proper estate planning.  Many states have laws that give the spouse rights over your children so careful planning must be done to ensure your money is going to your intended recipient.  Prenups and postnups are awkward to discuss, but they can be the best tool in this situation.

Tax Planning

Multi-year tax planning is often overlooked for all retirees, married or not.  However, it has become more important to evaluate its applicability to your situation with the new SECURE Act.

Many people have heard about the “marriage penalty,” but there is also a “widow penalty.”  Imagine a scenario where a couple has Modified Adjusted Gross Income (MAGI) of $160k. This couple will pay standard premiums for Medicare Parts B and D.  When one spouse passes away, the total income will likely go down, but not by half. If the MAGI for the surviving spouse is more than $138,00, that spouse would pay about $265 more per month for Medicare Parts B and D.  Roth conversions are just one strategy that can address this.

Also, if you’re still working, single people are usually more likely to itemize since the State and Local Tax (SALT) cap was introduced by the Tax Cuts and Jobs Act of 2018. 

The SECURE Act also eliminated the stretch IRA for many people who were previously eligible.  If you inherit a qualified plan then you will need to do proper tax planning to determine the most advantageous way to access the funds over the next 10 years. The same applies to your own children so it is important to revisit your estate planning documents to make sure you are setting your heirs up in the most advantageous way.

Insurance

Many people believe you no longer need life insurance once you’re able to retire because you are, by definition, financially independent.  I generally agree with this, but there are still uniquely specific situations where someone is dependent on you and would be financially harmed if you were to pass away.  If nobody is financially dependent on you, there probably isn’t any reason to take life insurance into retirement.

Many of you may have been sold a permanent insurance policy at some point.  These types of policies are oversold in general due to the high commissions earned by sales agents, but yours could have made sense at the time.  Regardless of how you ended up with a permanent policy, you now have to evaluate whether or not you still need the death benefit. If you don’t need it, then you have to evaluate it as an asset to determine what you should do.  You have several non-forfeiture options to choose from.

Moving on to long-term care insurance (LTCI).  LTCI has had its share of headlines recently for good reason.  It is very expensive, but that’s because long-term care is expensive.  The probability that you will ever fully collect from a LTCI policy is low, but if you ever needed to, then the decision to purchase the policy will turn out to be one of your greatest financial decisions.   This mathematical paradox is why it’s important to take other factors into consideration. For instance, the more you value leaving an inheritance the more likely you would want LTCI.

There are also “hybrid” policies that combine return of premium, a death benefit and LTCI all in one product.  Generally speaking, it is usually best not to combine risks. I’ve seen instances where the better decision mathematically is to invest the lump sum required and use the earnings to purchase a stand-alone policy.

The takeaway here is to have a plan that is best for you, not what is best for an insurance agent.

It is also important to understand the LTC ramifications if you get married.  Your new spouse may be on the hook financially in order for you to qualify for certain government long-term care benefits, and vice versa.  We all know marriage is about much more than dollars and cents, but it’s not difficult to see a few scenarios where very careful estate planning should be done.

Social Security

For anyone in good health and financially planning to live a long time, you are generally better off to wait until 70 to maximize your Social Security benefit.  This applies whether married or single. You will not only receive more funds overall, but this better insures you if you live a long time and can put less stress on your portfolio.  

There are special rules for widows and divorces.  For example, a surviving spouse can claim a benefit on their deceased spouse’s benefit as early as 60. A divorced person may collect on their ex-spouse’s benefit if the marriage lasted 10 years or longer.  The rules are very specific so make sure you know the options available to you given your specific circumstance. The last thing you want to do is leave money on the table.

Challenges Women Face

Everyone’s circumstances are unique, but women are more likely to live longer and more likely to have earned less.  From a pure financial standpoint, living longer creates a more challenging retirement in terms of making your portfolio last longer and probably having higher health care costs.  In fact, about 40% of women over 65 are living alone in America right now.

The most straightforward solution to this issue is to work longer.  Not only are there significant financial benefits, there are more and more studies showing the social and emotional benefit to staying engaged in the workforce.  Even working part time can do wonders from a retirement success standpoint, especially if you are able to leave a job or career you don’t particularly enjoy to do something more meaningful and fulfilling to you.

Because Social Security benefits are based on earnings, women will have lower benefits assuming all other factors are equal.  This makes it even more important to wait as long as possible before collecting, assuming no health concerns, because the benefit will increase about 8% each year you wait up until 70.  Working longer can also increase this amount depending on your circumstance because your 35 highest earning years are considered in the calculation. For many people, an additional year worked is replacing a $0 earnings year.

Retirement Success Beyond Finances

The MIT Age Lab has identified three questions that can predict retirement success. It leans toward the topic of aging and won’t apply in early retirement for many of you.  These questions are not necessarily financial in nature, but must be considered when contemplating the financial aspects of retirement. After all, retirement is about much more than asset allocation and withdrawal rates.  Retirement means many things to many people, but a common thread is the freedom to spend the time doing what you want. Money is simply a tool to make that happen.

Who will change my light bulbs?  

This question goes further than who will help me with maintenance around the house.  This gets to the very idea of housing altogether. Imagine a large, multi-story house with dated electrical systems and a big yard.  Now imagine a one-floor condo with community amenities built in the last 10 years. Which one do you think you would be able to live in longer?  Simply choosing to live in a different type of abode can increase your chances of staying independent longer. This also brings up the topic of a support network/service providers which is discussed further below.

How Will I Get an Ice Cream Cone?

The decision to get an ice cream cone is not a financial one.  I’ve yet to see a retirement plan fail due to an ice cream cone.  This question is more about how you will access the things you enjoy doing.  Transportation is one manifestation of this concern. As you get older, will you be able to access the things you want?  With the proliferation of ridesharing services and the potential for self-driving cars, this may become easier and easier as time goes by.  Many retirees solve this problem by moving to a community that has the right kind of amenities they want, which could mitigate the need for transportation altogether.

Who Will I Have Lunch With?

Once again, this is not about affording the food you need to eat.  This is about maintaining a social and support network in retirement.  There are many ways to go about this, but some of the more common involve interacting with others that share similar interests and living in a community where your neighbors are in similar life stages.  One concept we haven’t discussed yet is the Continuing Care Retirement Community (CCRC). CCRCs allow you to join the community fully independent, but also to stay in the community if you ever need more care such as assisted living or skilled nursing care.  This allows you to maintain your existing social network.

As we’ve seen, retirement planning in general has a lot of moving parts no matter your relationship status.  Some items can be simpler for the solo-retiree than a married couple, but in many other areas the decisions are more complex. We’ve also seen that there are many solutions to each topic, which means trade-offs must be made and plans determined.  The takeaway isn’t so much what to do, but rather to begin thinking about these issues and making a plan.

Provision Financial Planning serves people retiring single by guiding you through these decisions.  We invite you to watch this webinar recording where we discuss these topics further or download 9 Mistakes to Avoid When Retiring Solo.  

You can also take advantage of a complimentary intro appointment where we’ll share our initial thoughts and observations on your specific situation.  You can schedule that here.

**A version of this article originally appeared on Sixty and Me.

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