Retirement Planning with Safe Money – Married vs. Single
If you’ve been financial planning for retirement, there will likely come a time when you will want to convert some or all of your assets into a stable and ongoing stream of income. Planning ahead can differ for everyone, though, based on specific needs. One of the most significant differences in moving forward with retirement income planning is whether you are married versus single.
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Who Will Be Making Decisions About Your Retirement Plan?
Information about retirement planning is plentiful – especially with easy access to the Internet. But, while certain investments and strategies can work well for some people, they may not be suitable for you. That’s why it is wise to first discuss your situation, as well as your short- and long-term financial objectives, with a retirement income planning professional. Your marital status can have a significant impact on how you go about planning financially for the future. For instance, if you are married, you and your spouse need to be on the “same page” as you move forward. If you both similarly manage money, it could make things much easier than if you have differing viewpoints about handling your finances. With that in mind, communication and compromise can be significant keys to success. On the other hand, if you are single, you will be making many important financial decisions on your own. But this doesn’t necessarily mean that others won’t be involved in your overall retirement plan.
Retirement Planning on Your Own According to Pew Research Center, approximately 31% of Americans are single. This group is made up of widows(ers), divorcees, and those who have never been married. The singles demographic is fairly evenly split between men and women. Becoming “suddenly single” (i.e., divorced or widowed) can differ for men versus women. This is especially true for how each gender fares when they are no longer coupled. For instance, while many men might not see a large drop in their income following their spouse’s loss, women typically do. So, in some cases, facing the future on your own may be challenging as it pertains to saving, investing, and planning for retirement. If you are single and have no children, your financial plans will require a support network that you can call on, along with some special strategies for healthcare and estate planning. As an example, who will make medical decisions for you if you become incapacitated? Likewise, who can you trust to ensure that your bills are paid and that other financial obligations are taken care of if you cannot do so on your own? As a single individual, you should also make sure that you have enough cash on hand to cover emergencies, such as patching a leaky roof or repairing a fender bender on your vehicle. Many financial professionals recommend having at least six to twelve months’ worth of living expenses available. If you are still actively working, it is also a good idea to consider having disability insurance so that you’ll still have an incoming cash flow if you become ill or injured and cannot work (and earn an income) for a lengthy period of time. (Ideally, a disability insurance policy should pay a benefit of 80% to 90% of your regular monthly income amount.) When it comes to lifetime income in retirement, singles can face even more challenges than their married counterparts. For example, many married couples can count on two income streams from Social Security – even if one of the spouses never worked outside the home but qualifies for spousal retirement benefits. According to the Social Security Administration, an average wage earner can anticipate replacing roughly 40% of their pre-retirement earnings with Social Security benefits. As a single individual, this can fall far short of where you would like to be. For higher wage earners, this replacement percentage is even lower. If you are single because of divorce or a spouse’s death, you may be eligible to collect Social Security survivors or divorced spouses’ benefits. Social Security survivors’ benefits are paid to widows, widowers, and dependents of eligible workers. As an ex-spouse, you could receive Social Security benefits based on your former spouse’s work record, provided that:
- Your marriage lasted for at least ten years or more
- You are not married
- You are age 62 or older
- The Social Security retirement benefits that you are entitled to receive based on your own work record are lower than the benefit you would receive based on your ex-spouse’s record, and
- Your ex-spouse is entitled to either Social Security retirement benefits or Social Security disability benefits.
Because many employers have done away with defined benefit pension plans, you may have to count on the remainder of your retirement income from your personal savings and investments. Unfortunately, there are many risks that you could face with your money, both before and after retirement. These can include:
- Volatile stock market
- Low-interest rates
- Inflation/loss of purchasing power
- Healthcare or long-term care costs
- Longevity (living “too long”)
Single individuals must also plan ahead for the transfer of assets upon death. One way to do this is to ensure that you have a beneficiary named on certain accounts, such as IRAs and employer-sponsored retirement plans. Transfer on Death, or TOD, is another way to bypass probate with various assets, like bank savings and checking accounts and vehicles. Creating a will can also help your loved ones know where you would like assets, personal property, and other value items to go upon your passing. Having a good retirement plan in place can help you feel more secure about where your future income will be coming from and how long it will continue. So, putting a strategy – and a team of experts – in place is recommended. After it is created, you should review your plan on a regular basis. Many financial professionals recommend doing so at least once per year. But you should also take another look at your plan if you have any major changes that take place in your life, such as marriage, the birth or adoption of a child or grandchild, or the purchase or sale of a home or business.
Planning for Retirement With Your Spouse or Partner If you have a spouse or significant other, both of you may have income sources in retirement. These could come from an employer-sponsored defined benefit pension plan, Social Security, interest, and dividends from personal savings and investments. You must coordinate these sources of incoming cash flow. You should also make sure that your anticipated expenses in retirement are less than the amount of net income you have flowing in. Otherwise, you could have an income “gap.” One of the first steps to a successful retirement plan for couples should be having an in-depth conversation about your financial goals. From there, you should create strategies for each of these objectives. Keeping an open communication line can be particularly important for couples who have different spending and savings habits. Couples can oftentimes save more money by sharing expenses. In addition, couples may also enjoy many benefits that single people don’t have when it comes to insurance coverage and paying taxes. As an example, the standard deduction that the IRS allows for couples is twice as high as the deduction for single individuals. Also, when one spouse dies, he or she can pass along an unlimited amount of assets to the surviving spouse without having to pay gift or estate taxes. This is not the case for single individuals. Similarly, if you sell your home as a single person, capital gains tax is not due on the first $250,000 of gain. But married couples can make up to $500,000 in profit on a home sale without being taxed on capital gains. Married couples can also enjoy some additional benefits too, such as:
- IRA Contributions – Single individuals who are unemployed cannot contribute to an IRA (Individual Retirement Account). However, a stay-at-home spouse may set up a spousal IRA account, even if he or she does not earn an income outside the home.
- Inherited IRA Funds – If you inherit an IRA account and you are the spouse of the original owner, you may treat the account as if it were your own (and name yourself as the owner), or you may roll over the funds from the inherited IRA into either another IRA account or to a qualified employer-sponsored retirement account. However, non-spouse IRA beneficiaries must access all of the money in the account – and in turn, pay the associated taxes – within ten years.
- Social Security Retirement Income – Married couples also have more options for collecting Social Security retirement benefits. In this case, the spouse of a qualified worker/retiree may either collect his or her benefit or take a spousal benefit, which represents 50% of the amount your spouse is eligible for. Note that even a non-working spouse who has never paid taxes into the Social Security system may still collect spousal retirement income benefits.
Once you have created a plan with your spouse or partner, it is not a set-it-and-forget-it endeavor. Rather, you should ideally review the plan every year with a retirement financial advisor – and even more frequently if you have had any significant life changes, such as divorce, death of your spouse, the birth or adoption of a child or a grandchild, or the sale or purchase of a home or a business.
Keeping Your Retirement Plan Flexible for Major Life Changes
Even if you have created a detailed retirement plan that is based on your current situation, it is possible that things could change in the future. For instance, unexpected accidents and illnesses can and do occur. So, you (or your spouse) could end up on your own later on. Likewise, as a single individual, you may end up finding love again and partnering or getting married down the road. It is also possible that your work-life could change, too. For example, if you are an owner or partner in a business, you might find an ideal replacement for yourself who will buy you out of your ownership share(s). Other factors may need to be included in your plan, too, regardless of whether you are married or single. For instance, you may inherit an unanticipated windfall. Likewise, job loss or a reduction in your income could alter the amount or the frequency with which you contribute to your savings. You may have to add other provisions to your financial plan, too, that consider:
- Ongoing care for a special needs child or other loved one
- A spendthrift clause to curb a beneficiary from squandering his or her inheritance all at once
Having the right retirement plan in place can help you ensure that, even if things don’t go as you anticipated, you can still move ahead financially and enjoy the next phase of your life, knowing that you will have income for as long as you need it.
Do You Have a Stable and Flexible Retirement Plan in Place?
Whether you are single or married, one of the keys to a successful retirement is ongoing income that you can rely on in any type of market or economic environment. If you have more than one retirement income source, it is also beneficial to coordinate them to maximize the amount and the longevity of the payments. If you would like to learn more about creating a retirement plan that works for your specific situation, feel free to contact us and talk with our income for life advisors. You can reach us directly at [email protected]. We look forward to assisting you with your retirement income strategy.
