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Retiring Single Learn Tips to Overcome the Financial Challenges Retiring Single Learn Tips to Overcome the Financial Challenges
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Retiring Single? Learn Tips to Overcome the Financial Challenges

Rebekah Barsch •  November 15, 2016 | Enjoying Retirement, Your Finances

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Retiring as a single person? Whether by choice or as the result of divorce or death, when you go it alone in retirement, financial preparedness is essential. And yet a 2016 study by the Economic Policy Institute shows that less than half of all single people in the U.S. have retirement savings accounts—even those who are nearing retirement.

In some ways, the statistics are not surprising. If you’re single, you know:

  • It can be harder to save money for retirement as a single person. Single people often have to do more with less. As a single person, you have to cover many of the same expenses as a married couple (housing, food, utilities), but you may have to do it on one income, leaving less money available to meet other financial goals like saving for retirement.
  • You hit the high tax brackets faster than a married couple. As a single person, you pay a higher percentage of your income in federal taxes compared to your married counterparts. If you earn $75,000 as a single person, your federal income tax rate for 2016 is 25 percent. A married couple who makes a combined $75,000 in income and files jointly pays 15 percent in federal taxes. So for the same amount of gross income, you have less take-home pay as a single.

Not only is it often more difficult to save for retirement as a single person, you may also have greater expenses once you reach retirement. You may not be able to live half as cheaply as your married friends, as you’ll still have to foot the bill for housing, food and utilities. And you may find yourself choosing (or needing) to hire people to take care of things a married person’s spouse might do, whether it’s a simple task like mowing the lawn or something more significant like providing care as you age.

Free Download: Northwestern Mutual’s Guide to Paying Taxes Now or In Retirement

So if you’re retiring single, here are a few steps you can take today to create a greater level of financial confidence to go it alone in retirement.

  • Have a plan to save smartly for retirement. Start by contributing to your employer-sponsored 401(k) or 403(b). The upside? Your employer may match some of your contributions. You’ll get a tax break now since you make contributions pretax. And your money will grow tax deferred. The downside is this: You’ll pay later for the tax breaks you get today. When you begin making withdrawals in retirement, you’ll have to pay taxes on that income. Consider diversifying where you save money based on tax treatment so you can minimize taxes in retirement. Save across a mix of taxable and tax-deferred retirement savings vehicles, like a 401(k); a Roth IRA, for which you pay taxes on the way in but never again; or an annuity. You may also consider cash value accumulated in permanent life insurance to supplement your retirement income.
  • Protect your ability to earn an income (and fund your retirement). Think for a moment about what would happen if you became ill or injured and unable to work. Without a spouse’s income to fall back on, would you have to stop saving for retirement? Or worse yet, would you have to tap into your retirement savings to cover living expenses? You can avoid having to make those tough choices by having short- and long-term disability income insurance coverage. Disability income insurance replaces a portion of your income if you become disabled, which makes it easier for you to maintain your standard of living and “stay the course” for retirement.
  • Your Estate Plan: Is a Trust Right for You?Take estate planning seriously. When a married person dies without a will, his or her assets will typically be passed to a spouse or kids. By contrast, the “default” beneficiary for an unmarried person who dies without a will may surprise you, especially if there are no children. Often, it’s the elderly mom or dad (if living). So as a single person, make sure you have a will; it’ll help to ensure that your assets get distributed according to your wishes after you’re gone. And as part of the estate planning process, be sure to include documents to address what would happen if you became ill or incapacitated. Who will make medical decisions for you or manage your money if you’re no longer able to? Without a living will and powers of attorney for health care and finances, an expensive court proceeding may become necessary to deal with these issues.

Special Considerations for Those Who Are Retiring Single After Divorce or Death of a Spouse

  • Re-envision your retirement. When you were married, you and your spouse probably shared a vision for retirement. Now that you’re retiring single, has the vision changed? Will you travel more or travel less? Move closer to children or grandchildren? How do you hope to be spending your time? Once you’ve re-imagined your retirement life, you can adjust your plan to save for (and spend in) retirement accordingly.
  • Revisit your retirement savings strategy. Start by taking a look at the way you save for retirement. Are you comfortable taking the same amount of risk with your portfolio as you (or your spouse) may have done when you were married? And as you think about how much you’ll have to spend in retirement, were you counting on both of you receiving Social Security? Were you counting on income from a pension that you may now not receive? Your financial picture has undoubtedly changed now that you’ll be retiring as a single person, so take the time to reassess—both in terms of how you’re saving for retirement and how much you’ll need.

If you’re single and don’t yet have a plan to save for retirement, it’s never too soon to get started. Talk to a financial professional. He or she will work with you to develop a plan to establish goals and fund your retirement.  

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