Many Americans will head into retirement solo for different
reasons, of course, including the death of a spouse, divorce and changing
lifestyles. In the 2013 U.S. Census, some 54% of women 65 or over were
unmarried, and 27% of men. Something senior singles tend to have in common is
that their retirement-planning needs can be very different from those of
married peers—and that many of them are unprepared.
In fact, a study by Rand Corp. says that single people are
at much greater risk of not saving enough for retirement than married couples.
The study found that 20% of married couples won’t save enough for retirement,
but that some 35% of single men and 49% of single women will enter retirement
financially unprepared.
For the newly widowed or divorced, advisers say that housing
costs may jump as a proportion of income and that some income streams may
become less predictable. A single person’s cost of living isn’t, as some might
think, 50% of a couple’s. It may be 60% to 80% of a couple’s—or even the
same—unless the single person reduces housing expenses significantly, something
AARP research indicates 40% of adults will consider.
Fewer Tax Breaks
In addition, singles often miss out on tax breaks (filing
jointly, for instance) that are available to married peers. As they look ahead,
singles may also perceive a greater need to pay for pricey long-term care
insurance in the absence of a spouse-as-caretaker, which can come at the
opportunity cost of investment.
Standard financial-planning models suggest that retirees can
typically withdraw 4% of their portfolios starting at 65, adjusting the
withdrawal upward over time for inflation, and not outlive their means. For
single women in retirement, it may make more sense to start with a lower
withdrawal—maybe 3.5%.
Tax experts add that single adults often face steeper tax
challenges than their married peers, especially as they near retirement age.
Without child tax credits, a spouse exemption, and no one with whom to realize
the benefits of filing jointly, singles can take a pretty big tax punch during
peak earning years.
Singles have to be smart about planning for withdrawals from
their retirement accounts once they’ve stopped working. While withdrawals from
traditional individual retirement accounts are taxed as ordinary income,
withdrawals from Roth IRAs aren’t taxed. For this reason, it can be wise for a
single person to move a portion of funds into Roth products before age 70½.
Because traditional IRAs require that adults begin withdrawing a minimum
distribution (based on a percentage of total assets) at age 70½, retirees with
substantial assets in a traditional IRA may be surprised at the high tax
brackets.
More Surprises
For retirees who are recently divorced, there can be other
surprises as well. Assets like alimony and life-insurance policies become less
reliable sources of income. Alimony designed to cover a former spouse for life,
for example, may dry up upon the death of the former spouse who was paying. In
addition, the owners of life-insurance policies determine who the beneficiaries
are; thus, singles who don’t become owners on a shared policy may find
themselves without benefits if an ex changes the beneficiaries.
There can be overlooked benefits for divorcées, however.
Many don’t realize they may be eligible to receive an ex-spouse’s Social
Security benefits, for example, provided the marriage lasted a decade. The
divorced spouse can do this even if the ex has remarried, and with no impact to
the ex’s benefits.
Such a strategy can provide bridge income that can help
defer collection of Social Security benefits, and thus increase the benefits
that one receives. Indeed, some people choose to delay collecting their
benefits until age 70.
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