Single Life Plan For Retirement
Nine Essential Tips For Financial Planning As A Single Person
|Written by Tom Yeung, CFA | CDFA|
Investment Advisor & Fund Manager, Jurnex Financial Advisors
Planning for retirement can already feel overwhelming. But what about a single life plan for retirement? Where to find resources that’s not just focused on married couples?
In this article, we cover the nine things that single people should keep in mind when creating a financial plan for retirement.
The importance of a single life plan for retirement
According to the US census, 36% of people age 55-64 aren’t married or partnered.
And the number is growing. Compared to 1986, Americans today are three times more likely to have NEVER married. Yet most financial plans assume that you’re married. From spousal benefits to estate planning – general advice leans towards planning for couples.
But retiring alone has specific financial challenges too. Who will take care of you in old age? How much more should you save? These can be frightening questions to consider.
We get it.
And fear is no reason to put off planning. That’s because there’s little more important than investing correctly for your future.
And because financial planning is such a personal subject, I highly recommend you reach out to an investment pro who cares about your nest egg as much as you do. But to get you started, here are the nine things you need to do to start planning for a single life in retirement.
Nine Tips For a Single Life Plan For Retirement
1. Ace your savings plan
Dual-earning spouses can typically rely on each other to help cover risks. But when you’re creating a single life plan for retirement, there’s a greater need for self-sufficiency.
For example, if a couple needs $3 million to retire on, a single person would need about $2 million to cover the same risks.
Why do single people need to save smarter?
Consider Alzheimer’s Disease as an example. Because Alzheimer’s is a chronic disease, people can live with it for a decade or more. And the cost of care can be staggering. On average, a 24/7 nursing home would cost about $1.5 million over ten years.
These days, the probability of one person falling ill with Alzheimer’s is about one in six. And if that happens, a married person might partially rely on their spouse for care. The probability of BOTH partners falling ill is ONLY one in thirty-six. (1/6 x 1/6 = 1/36).
A single person, on the other hand, has a 1/6 chance of needing professional 24/7 care.
That’s why I recommend my single clients aim to have at least two million dollars saved by the time they reach middle-age. Having enough saved means your investment returns can cover a large portion of cash requirements.
2. Maintain six months of emergency expenses
While most dual-working couples need about three months of emergency cash, a single person should have at least six months available.
According to the Bureau of Labor Statistics, the average length of unemployment lasts about 21.8 weeks or about five months.
In a dual-income family, one spouse’s income can cover employment gaps in the other’s. But that’s not an option for single people.
Savers should avoid dipping into long-term savings to fund near-term shortfalls. That’s because the penalties for 401(k) or IRA early-withdrawals can be steep: savers will face a 20% tax withholding, followed by a permanent 10% penalty.
3. Choose a legal executor (and then communicate frequently!)
Typically, married people select their spouse to be their executor. But if you’re single, you need to find an alternative.
- Durable healthcare proxy. This person will take charge of your medical directives if you’re incapacitated. For single people, consider finding a close friend. And then COMMUNICATE. Quiz them on specific scenarios to make sure they understand your exact wishes.
- Will and testament. If something were to happen to you, who would take care of your estate? Typically, single people choose a trusted professional such as a financial advisor or family lawyer, to execute their final wishes.
4. Choose disability insurance over life insurance
A single-life plan for retirement should include disability insurance. That’s because the loss of a single income can be devastating to an individual’s future finances.
There are several types of disability insurance available:
- Short-term disability. Insurance that pays up to 80% of your pre-tax income for a short time, typically up to a full year.
- Long-term disability. Insurance that pays out either if you can’t work at your current job, or in ANY capacity. Own-occupation disability typically has much lower premiums than any-occupation disability.
- Supplemental disability. Insurance that closes the gap between employer-sponsored disability plans and an individual’s expenses
To offset the cost of disability insurance, many single people avoid taking out life insurance policies. With fewer dependents, the need for life insurance decreases.
5. Fine-tune your taxes
Married couples can benefit from spousal deductions. For example, married couples can deduct $500,000 of capital gains from the primary residence. Single filers, on the other hand, can only deduct half of that, or $250,000.
When you’re creating a single life retirement plan, proper tax planning becomes even more critical.
- 401(k) plans. Employment-sponsored retirement plans, also known as 403(b) plans for government workers. These plans can help generate tax-deferred or tax-free savings.
- IRAs. Individual retirement plans with $6,000 annual contribution limits (or $7,000 if you’re over age 50).
- Real estate. Smart use of tax deductions can help save you thousands of dollars. For example, 1031 exchanges allow you to defer taxes on real estate investments on reinvested earnings. And mortgage interest deductions will enable you to reduce taxable income.
6. Pre-plan your long term care
When it comes to managing long-term care, there’s a temptation to kick the can down the road. While that’s fine for married couples, singles are better off pre-planning their long-term care needs. That’s because if a single person becomes incapacitated, they won’t have a spouse to help them set up long term care.
Caregiver selection. Pre-selecting your long-term care provider can provide many financial benefits down the road. Not only will you have a caregiver that fits your personality, but you’ll also know the quality and cost of care beforehand.
- Source of funds. Options for funding long-term care include:
- Long-term savings. The most dependable funding source for retirees. Having enough savings, however, also involves managing your wealth well. ###
- Long-term care insurance. Premiums typically range from $1,700 to $3,500 for single 55-year-old individuals. But keep in mind that premiums can increase over time, and missing even one payment can result in cancellation.
- Medicaid. Lower-income retirees can use Medicaid to supplement long-term care costs. Typically, Medicaid will cover ~40-60% of long-term care costs.
Keep in mind that Medicare doesn’t cover long term care.
7. Consider where you want to retire
Single people have far greater freedom when it comes to choosing a place to retire. But having a general idea of your retirement location provides some benefits.
- How much to save today. Retirement expenses are highly dependent on the local cost-of-living. Knowing your future budget will help determine how much you should be saving and investing today.
- Planning medical care. If you’re planning on retiring elsewhere, do you need to make any financial preparations? Health Savings Accounts (HSAs) Can help prepay medical expenses. And if you’re planning on retiring abroad, check with insurance companies to see the cost of care.
- Buying property in the area. Great real estate deals don’t happen very often. But if you already know where you want to retire, you can spend YEARS patiently waiting for good real estate deals to come around. And if you buy a property before retirement, you can always rent out the house until you’re prepared to move in.
8. If you marry, protect yourself with a prenup
Most people approaching retirement have significant nest eggs to protect. Make sure you protect your property with a well-written premarital agreement.
- Separate property. Assets you accumulated before marriage, or are gifted during the marriage. These must stay in your name to remain separate property.
- Marital property. Assets you accumulate during marriage. These are typically split “equitably” in 41 states, and “equally” (i.e., 50-50) in the other nine.
However, commingling your separate property can cause future legal issues. Adding your spouse’s name to one of your investment accounts, for example, can cause your separate property to become marital assets. You might be able to undo the conversion by going to court and proving ownership of the assets. But a judge may decide against your case.
That’s why a premarital agreement is essential for people going into a late-life marriage. While it can be great to have a partner, make sure you’re protecting yourself financially too.
9. Enjoy life
Finally, being single for life can be liberating. And a single life plan for retirement should reflect those joys of independence and self-reliance.
- Travel. Make sure your retirement plan includes a travel budget. Even if you don’t like traveling alone, there’s little reason to stay at home. These days, are plenty of tours and cruises for single people who want to remain single.
- Spend money on others. As a single person, there’s a temptation to spend money only on personal pursuits. But a healthy financial plan should also involve spending money on others, whether on visiting friends, or gift-giving. Studies show that gift-giving can bring lasting happiness to the gift giver.
- Have your money work for you. With a carefully researched and executed investment strategy, your investments will start generating predictable cash flows for you. Look into real estate, dividend stocks, and growth companies.
Where to find more resources
If this seems like a lot of information, don’t worry. The great news is that help is available. That’s because here at Jurnex, we work with individuals and families just like you to make the most out of investing. I’ve helped invest client money for over a decade in the same old-fashioned way. And that’s to seek out great companies in great industries that can you can buy at a discount to their fair value. Sounds too simple to be true? Give me a call today, and I’ll show you that it’s still possible after all these years.
We are an independent registered investment advisor and asset manager. We have the securities backing of Charles Schwab, yet we retain our operational independence from any third party. This means you can have the confidence your money is safe with one of America’s best brokerages and still receive knowledge and advice from an independent firm focused on YOU.
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