Single and looking for advice on retirement planning? You’re not alone. The number of single individuals is on the rise, especially among the young. Only about 50% of Americans over the age of 18 are married today compared to 72% in 1960. Couples are marrying later in life, never marrying, or simply choosing to live together and raise children without getting married.
Much of the literature you’ll find on retirement planning, however, is still only geared towards married couples. So if you’re single, you’re probably wondering if there are things you should do differently in your retirement planning journey. Or, you might actually grossly underestimate the significance of building a retirement fund if you don’t have kids to raise or a partner to support.
Even without dependents, it’s very important to prioritize saving as a single individual and to start early. Without a partner readily available for support if your health fails, it’s vital to prepare for costly long-term care expenses when you’re single.
It takes discipline and consistency to put money away each month, especially with the constant temptations of consumption and instant gratification today. But diligently saving and regularly investing can make the difference between a strained, stressful retirement and a comfortable, satisfying one.
Retirement Planning For Singles In 6 Simple Steps
Here are six simple steps you can take to start planning for retirement if you’re single.
1) Start Saving ASAP And Don’t Stop
When it comes to retirement, you want to plan for financial independence and your future while living in the present. Interest is among the most effective forces on the planet, which so many people underestimate. You can accumulate a massive sum even if you start with a small amount as long as you use time to your advantage. Have a peek at the graph below. A rate of 8 percent can turn a $24,000 contribution at age 21 to $471,358 by age 67.
The results are drastically different if you were to wait until age 47 to make a $24,000 contribution in the same investments. You’d only end up with $59,295 by age 67. You can easily see the power of compounding returns by the amounts of those two outcomes.
Socking money away in a retirement account such as a 401(k) may not be that appealing when you are young and single, but the benefits of starting early are clearly worth it. Check out my recommended 401(k) savings amounts by age guidelines.
And if you’ve thought about escaping the grind early, saving aggressively is more important than ever. Here’s a look at how much money you may need by age to retire early.
2) Utilize Company Matching Benefits
Most pensions have gone the way of the typewriter, but there are still a few companies offering retirement account matching. A typical company match is $0.50 on each dollar contributed by the employee, generally around 6 percent of the worker’s compensation. In other words, those businesses typically match up to 3 percent of salary.
Another employer participation program that is popular is dollar-for-dollar matching up to a certain percentage of salary. Be sure to check your employer’s retirement plan matching benefits and utilize them to your advantage.
3) Keep Your Investments Diversified
Did you know that the amount you accumulate in a retirement account such as a 401(k) may be insufficient for your retirement needs? Strongly consider putting additional after-tax money into investments to supplement your day to day expenses, unexpected emergencies, and long-term needs.
When it comes to making investment selections, it’s beneficial to have some diversity, within your risk tolerance preferences of course. Find an overall asset allocation with a mixture of investments such as stocks, bonds, ETFs, properties, and real estate crowdfunding.
4) Envision Your Retirement Goals In Detail
Did you know that about a third of Americans have not begun saving for retirement? And more than 25 percent of adults between the ages of 50-64 still have yet to put any cash towards their retirement.
Don’t let that happen to you! In order to have a desirable retirement, you should envision what you want it to be like in detail. Do you want to relocate to a beachside town, stay put in your long-time home, travel around the world, volunteer, go on adventures?
Once you have an idea of what you want to do in retirement, figure out how much your expenses could change while accounting for inflation, include a budget for unexpected expenses and healthcare, and tally up all the numbers.
You may need more money than you thought. Rising costs are already impacting millions of Americans.
5) Use Your Single Status To Your Advantage
If you’re divorced or widowed, you could be qualified to get your ex-spouse’s Social Security benefit every month. Make an appointment to speak with your local Social Security office to find out if you are eligible. It’s worth checking when the worst case is they just say no.
In addition, if you have a great deal of money tied up in a traditional IRA, you might think about transferring that cash (in tiny increments) to a Roth IRA. Be mindful that converting a traditional IRA into a Roth IRA may have tax consequences.
Converting in small increments may help you avoid falling into a higher tax bracket. But before doing a conversion, it’s worth speaking to your tax advisor to see how this could impact your tax situation.
6) Postpone Social Security
When should you start taking Social Security? You might be tempted to start withdrawing Social Security benefits as early as possible when you’re single. However, with life expectancies rising (one of the principal reasons why Social Security is underfunded), you might want to seriously think about delaying your social security benefits for as long as you possibly can.
The difference in the payment amounts for reaching full eligibility could make your monthly cash flow a lot more comfortable.
Get Prepared With Free Retirement Tools
Retirement planning doesn’t have to be harder when you’re single. You have full control over your finances and future after all. Sure life can throw unexpected twists and turns along the way, but proper retirement planning can help you withstand any curveball.
Be realistic with your desired lifestyle needs, savings goals, day to day expenses and unexpected emergency costs. Make things easier on yourself by utilizing retirement planning tools to help take the confusion and complexity out of the process as well.
Personal Capital has the best retirement calculator and planner on the market because it uses real data and Monte Carlo simulations to come up with the most realistic financial scenarios for your future. Other calculators simply ask you to guess input values to then come up with your financial future. The problem with this method is that we often underestimate how much we are saving and spending.
With Personal Capital’s retirement planner you can input different life events such as a wedding or home purchase in your cash flow statement and recalculate your financial future to see how you’ll do. Personal Capital uses real inputs to produce the best possible outputs.
For further clarity and confidence into your financial life, simply sign up for Personal Capital, link all your accounts, and their Retirement Planner will use your real-time account data to compute real outputs for your future. Everybody should give it a try.
About the Author: Sam worked in finance for 13 years. He received his undergraduate degree in
Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012,
Sam was able to retire at the age of 34 largely due to his investments that now generate roughly
$250,000 a year in passive income. He spends time playing tennis, taking care of his family,
and writing online to help others achieve financial freedom too.
Sam started Financial Samurai in 2009 and has grown it to be one of the largest independently
owned personal finance sites in the world. You can sign up for his free private newsletter here.