Planning for retirement as a single person comes with its own set of challenges, but it also offers unique opportunities. Your needs and strategies will differ from those of couples, and that’s okay. With the right approach, you can achieve a secure and fulfilling retirement on a single income. Here are eight essential tips to help you prepare for your financial future.

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1. Build Up Your Emergency Savings

Emergency savings are crucial. Think of it as your financial safety net for unforeseen hardships. Typically, having three to six months' worth of expenses saved up is recommended. However, being financially independent may necessitate a larger safety net. Focus on boosting your emergency fund while continuing to build your retirement savings. This extra cushion ensures you're prepared for unexpected financial challenges, giving you peace of mind.

2. Know Your Social Security Options

Social Security benefits can be more flexible than many realize. If you were married for at least ten years, you might be eligible to claim benefits based on your ex-spouse’s earnings, which can sometimes be higher than what you'd receive on your own. Additionally, if you delay receiving Social Security benefits until age 70, your monthly payment could increase by up to 32%. These strategies can significantly impact your retirement income, so it’s essential to understand all available options and make informed decisions.

3. Be Aware of Prior Commitments with Your Retirement Accounts

Your marital status can influence how you manage your retirement accounts like IRAs and 401(k)s. If you’re divorced, you might have obligations to split these accounts, affecting your withdrawal options. It's important to review any legal agreements and understand how they impact your retirement planning. Working with financial and legal professionals can help navigate these complexities and ensure that your retirement strategy remains robust and aligned with your goals.

4. Consider Your Lifestyle in Retirement

Retirement is not just about having enough money; it’s also about living the life you envision. Think about the activities and hobbies that will bring you joy and purpose. Planning for your retirement lifestyle includes considering where you want to live, how you will spend your time, and who will be part of your support system. Envision your day-to-day life in retirement and plan accordingly to ensure you achieve a fulfilling and enjoyable experience.

5. Consider Long-Term Care Insurance

Without a partner to rely on, the financial burden of long-term care can be significant. Long-term care insurance helps cover costs for in-home care or nursing home facilities if you need constant care. Purchasing this insurance at a younger age can save you money on premiums and provide crucial financial support in later years. This investment can protect your savings from being depleted by high medical costs and ensure you receive the care you need.  Like any other financial decision, the decision to purchase long-term care insurance is contingent on a number of personal factors (i.e. income, net worth, projected longevity; projected need for care, etc.).

6. Plan Strategically with Annuities

Annuities can be an excellent tool for securing a steady income in retirement. As a single person, you might be better positioned to maximize the payout from a single life-only annuity, which offers higher payouts because it ends upon your death. This type of annuity ensures a consistent income stream, helping you manage your expenses more effectively. Understanding the different types of annuities and how they fit into your overall retirement plan is key to making the most of this financial product.

7. Stay on Top of Your Estate Planning

Estate planning is critical for single individuals as there isn’t a default designee to carry out your wishes. Decide early on how you want your assets distributed, whether to children, relatives, or charities. Also, ensure you have a medical and financial power of attorney in place. This ensures that your wishes are respected if you become unable to make decisions yourself. Comprehensive estate planning provides peace of mind and ensures your legacy is handled according to your desires.

8. Understand Key Retirement Numbers

Navigating retirement planning can feel overwhelming, especially when trying to understand which financial metrics are most important. Here are some key retirement numbers to help guide your planning:

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Financial Independence Number

Your Financial Independence Number is the amount of savings needed to cover your annual living expenses for the rest of your life. Typically, achieving financial independence means having 25 times your annual expenses saved. For instance, if your annual living expenses are $50,000, you would need $1.25 million saved to be financially independent. This calculation assumes that the returns on your investments will sustain you indefinitely, so you also need to understand your portfolio’s expected rate of return (see discussion below on Rate of Return on Investments)l. Knowing this number helps you set a clear savings target and gives you a tangible goal to work towards.

FI Ratio

The FI Ratio measures how close you are to achieving financial independence. To calculate it, divide your net worth by your Financial Independence Number. For example, if your net worth is $500,000 and your Financial Independence Number is $1.25 million, your FI Ratio is 40%. A higher percentage indicates that you are closer to your goal. This ratio provides a straightforward way to track your progress and make adjustments as needed to stay on course.

Social Security Start Age

The age at which you start receiving Social Security benefits significantly affects the amount you receive. While you can start collecting benefits as early as age 62, delaying benefits until age 70 can increase your monthly income by up to 32%. This increase results from delayed retirement credits, which boost your benefit amount each year you wait past your full retirement age. Understanding this (as well as your expected longevity) can help you make an informed decision about when to start benefits based on your financial situation and life expectancy.

Monthly Guaranteed Lifetime Income

Monthly Guaranteed Lifetime Income includes sources like Social Security, pensions, and annuities. These income streams provide a stable, predictable amount of money each month for the rest of your life, regardless of market conditions. Knowing your guaranteed income helps ensure financial security in retirement because it covers essential expenses and reduces the risk of outliving your savings. This steady income can provide peace of mind and a solid foundation for your retirement budget.  However, as discussed below, inflation can decrease the purchasing power of guaranteed income that is not increased for increases in prices.

Inflation Outlook

Understanding inflation’s impact on your savings and income is crucial, as it affects your purchasing power over time. Inflation erodes the value of money, meaning that the same amount will buy less in the future. For example, if inflation averages 3% per year, something that costs $100 today will cost $103 next year. Planning for inflation helps you maintain your lifestyle in retirement. Use historical inflation rates to make realistic assumptions and adjust your savings and investment strategies accordingly to ensure your money keeps pace with rising costs.

Rate of Return on Investments

Knowing the expected rate of return on your investments helps you estimate how much your savings will grow. Historical data and market conditions provide a basis for these assumptions. For example, the S&P 500 has historically averaged about a 10-11% annual return, but this can vary widely. Using a realistic rate of return helps you create more accurate financial projections. Regularly review and adjust your portfolio to align with changing market conditions and your evolving risk tolerance.

Out-of-Pocket Healthcare Costs

Healthcare can be a significant expense in retirement. According to recent estimates, a single person aged 65 in 2023 may need approximately $157,500 saved to cover healthcare expenses throughout retirement. Estimating these costs helps you plan for medical expenses and consider options like long-term care insurance. This insurance can cover the cost of in-home care, assisted living, or nursing home facilities, protecting your savings from being depleted by high medical costs. Including these expenses in your retirement plan ensures you are prepared for potential healthcare needs and can maintain your quality of life.

Living on One Income: Budgeting for Singles

Managing finances on a single income can be challenging but achievable with strategic planning. Here are practical tips to thrive financially:

Assess Your Financial Situation

Start by calculating your total monthly income, including your salary and any additional sources. Knowing your income gives you a clear picture of what you have to work with each month.

List Fixed Expenses

Document all your fixed expenses such as rent, utilities, insurance, and debt payments. This helps you understand your essential outflows and where you might cut back if necessary.

Track Changing Expenses

Monitor your variable spending on items like groceries, dining out, entertainment, and personal items. Use budgeting apps or spreadsheets to track these expenses for at least a month.

Differentiate Needs vs. Wants

Identify which expenses are essential (needs) and which are non-essential (wants). This helps prioritize your spending and find areas where you can save.

Set Financial Goals

Define your short-term and long-term financial goals, such as paying off debt, saving for a big purchase, or building your retirement fund. Having clear goals helps guide your financial decisions.

Create an Emergency Savings Fund

Aim to save enough to cover three to six months of living expenses. This fund acts as a buffer against unexpected events like job loss or medical emergencies.

Allocate for Savings

Decide on a specific percentage of your income to save regularly. Consistent saving habits build financial security over time.

Start a Debt Repayment Plan

Focus on paying off high-interest debts first. Create a plan to systematically reduce your debt, freeing up more money for savings and investments.

Protect Yourself with Insurance

Ensure you have adequate insurance coverage, including health, life, disability, and property insurance. Insurance protects you from financial setbacks due to unexpected events.

Avoid Impulse Spending

Stick to your budget and avoid unnecessary purchases. Being mindful of your spending helps prevent financial strain.

Negotiate Rates

Negotiate for better rates on recurring bills like cable or internet. Explore 0% interest rate balance transfer offers to reduce credit card interest payments.

Plan for Intermittent Expenses

Budget for irregular expenses like car maintenance or emergency travel. Planning ahead prevents these costs from disrupting your finances.

Celebrate Milestones

Reward yourself for achieving financial goals, like paying off a debt or reaching a savings target. This keeps you motivated and committed to your financial plan.

Seek Additional Income Streams

Explore ways to supplement your income, such as freelance work, part-time jobs, or passive income opportunities. Extra income provides additional financial security.

Stay Educated

Continuously learn about personal finance strategies and investment options. Knowledge empowers you to make informed decisions and stay on track.

Consult a CERTIFIED FINANCIAL PLANNER™ (CFP®)

Navigating retirement planning alone can be complex. Consulting a CERTIFIED FINANCIAL PLANNER™ (CFP®) can provide you with expert guidance tailored to your unique financial situation. A CFP® professional can help you develop a comprehensive retirement plan, manage your investments, and ensure you're on track to meet your financial goals. Their expertise can be invaluable in making informed decisions and optimizing your retirement strategy.

The Bottom Line

Building a solid nest egg as a single person may come with unique challenges, but with thoughtful budgeting and careful planning, you can achieve financial stability and enjoy a fulfilling retirement. Start taking steps today to secure your financial future and enjoy peace of mind.

For personalized advice, consult with the experts at ONE Advisory Partners. Our team of financial professionals can tailor strategies to your unique circumstances, ensuring a secure and prosperous retirement.

Contact ONE Advisory Partners today and let us help you achieve your retirement goals!

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Reference

Kathleen Coxwell. 16 Retirement Numbers You Need to Know for a Secure Future. NewRetirement, June 27, 2024.

Pew Research Center. A profile of single Americans. Pew Research

Bureau of Labor Statistics. USUAL WEEKLY EARNINGS OF WAGE AND SALARY WORKERS FIRST QUARTER 2024. BLS

Bankrate. Financial planning for singles: 7 top tips for 2022. Bankrate

U.S. Census Bureau. HINC-02. Age of Householder-Households, by Total Money Income, Type of Household, Race and Hispanic Origin of Householder. Census

Congressional Research Service. The Social Security Retirement Age. SGP