Updated for 2021. In 2014, the Bureau of Labor Statistics reported that 50.2 percent of Americans were single. As much of the population delays marriage – or avoids it entirely – it presents some new planning considerations. Singles will need to plan for retirement in a different way than their married counterparts. Here are a few key reasons why: higher ratio of expenses to income, reliance on one income, and the loss of marital benefits for Social Security, estate planning, and taxes. But it isn’t all bad news. Single people without children tend to have more flexibility and control especially as it relates to geography. It may be easier for singles to move to an area with a lower cost of living or accept a better paying job in another state. Saving for retirement when single looks a little different, but these tips can help you plan accordingly.
Saving for retirement when unmarried
For singles, living expenses pose a challenge. It is estimated that an adult living alone may spend up to 70% of a couple’s living expenses, not 50%. Healthcare and housing expenses were the biggest spending categories.
The Bureau of Labor Statistics data reveals couples spend almost 24% of income on housing. Single men spend about 30% and single women nearly 40%. Unfortunately, women tend to earn less than men, which is a major factor. The added expense could also be driven by safety concerns. A less expensive neighborhood or garden level unit may not be an option if crime is a concern.
Ways single individuals can save for retirement
First, determine whether you need to make any adjustments at all. If you don’t already have a financial plan, you can get a sense of where you stand with your current retirement savings by using a guide such as J.P. Morgan Asset Management’s retirement savings checkpoints.
For example, a 45 year old with annual income of $150,000 should have about 4.2 times that amount in savings. Of course this is a very high level indicator of whether you might be on the right track and cannot substitute for personal financial advice. But it can be useful, particularly if you only have a fraction of that saved up.
Assuming you need to boost your retirement savings, start by taking a look at your budget and cash flows. If you have extra cash each month, consider increasing your contributions to your employer-sponsored retirement plan or an IRA. In 2021, individuals under 50 years old may contribute up to $19,500 to a 401(k) or 403(b) and those 50 or older have an additional $6,500 catch-up contribution. IRA limits in 2021 are $6,000 for individuals under 50, with a $1,000 catch-up contribution for those 50 and older.
Already maxing out your retirement account? Consider opening a brokerage account to invest for retirement – or anything else. Although your IRA contribution may not be deductible, there is no income phase-out for a non-deductible contribution within the stated limits.
If you have plenty of years before retirement and sufficient cash flow, it may be relatively easy for some to get back on track. The situation grows more complex when one, or both, of these factors is not the case. To save for retirement, you’ll likely need to save more and/or work longer. Start by getting your finances in order and finding ways to cut spending. Consider downsizing lifestyle expenses – a car, condo, or travel budget may need to be trimmed. Once you have identified some cuts, speak to a financial advisor to develop a plan to reach your retirement goal.
Financially independent in retirement
If you’ve been single for a while, you are probably very adept at being self-reliant. Being financially independent as a single person can be hard; there’s no second income to ease the burden of going back to school or loss of a job. Having an emergency fund is especially important in these situations – six to nine months of non-discretionary expenses saved in a safe, liquid investment, typically cash accounts.
Also consider whether you have adequate disability insurance. According to the Social Security Administration, in 2015, a 20 year old had a 25% chance of becoming disabled before retirement. As a single individual living on one income, private disability insurance may be advisable. Although you may end up qualifying for Social Security disability, the criteria are typically much more stringent than for most private policies.
For example, Security disability requires your basic work functions such as lifting, standing, walking, and sitting to be significantly limited for at least 12 months. So even if you’re not fit to continue in your current high-paying occupation, you could be ineligible if still able to perform lower-paying jobs.
With private disability insurance, you have much more flexibility, and can choose features like an own-occupation definition of disability. Of course nothing is without a cost, so work with your financial advisor and insurance professional to determine what coverage and features make the most sense for your situation.
Estate planning when single
It’s a misconception that individuals without a spouse or children don’t need estate planning. If you become incapacitated or pass away, having the right documents in place can help ensure that your wishes are followed. Having a health care proxy allows you to appoint someone to make decisions related to your health if you are unable to do so.
With a durable power of attorney, you can pick a friend/relative to manage your financial affairs if you become incapacitated. Proper estate planning documents and current beneficiary information can also help ensure your wishes are met upon passing. Whether you’d like to leave an inheritance to a relative, friend, charity, or even a pet, without the proper documents a court may have the final say on your legacy.
Social Security benefits for unmarried retirees
Although recent legislation has significantly limited some of the Social Security filing methods to maximize benefits, the system still clearly favors the married couple. As a single person, you will need to take even more care to ensure your financial house is in order as your benefit will be based only on your earnings; a spousal or survivor’s benefit won’t be available if you’ve never married. Depending on your financial situation, this may not have much of an impact on your plan. If you’ve had a successful career, the Social Security benefit based on your own earnings history may already be maximized.
Everyone’s personal situation is a little different, requiring some personal financial planning. Whether you’re single, married with two incomes, or married on one income, each situation will require different considerations. Add children into any scenario and things change once again. Life is always changing, which is why you should revisit your goals and investments regularly to ensure they’re still aligned.
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