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The Single Person's Guide to Retirement

Posted by Ernest on January 4, 2012 at 9:05 PM

The single life has its advantages — not the least of which is freedom from certain family financial obligations. If there are no children, for instance, singles may not need to focus on saving for college or leaving an estate. But they also face very specific financial challenges — especially when it comes to planning for retirement.

With more and more people delaying or forgoing marriage, a new generation is approaching solo retirement, and for them a combination of conventional wisdom and tailored strategies works best to help manage the challenges of saving on a single income and passing an estate on to heirs who may not be immediate family members. If you are single, here are four things you can do right now to help ensure that you can enjoy your lifestyle well beyond your working years and that your estate is passed on to those you care most about.


Dream Early and Often

Having a vision is the most important step toward preparing for retirement, but single adults tend to spend less time planning for their financial futures than their married counterparts, according to Andrew Heiges, CFP, a director in Merrill Lynch's Retirement Product Development and Innovation Group. That's particularly true if there are no children, since creating a safety net for them (or paying for braces) hasn't been part of the daily financial picture.

Still, that doesn't mean single adults don't have other goals. While married people often plan their retirement around their families, singles may want to travel, become involved in volunteer work or start their own business. "Since you tend to spend more in retirement on these types of activities, that will play into the target amount you'll want to save," Heiges says.

Make Saving a Habit

A regular savings and investment strategy is key to any retirement, but single people face some unique costs, which they must compensate for. According to a 2009 report from the American Academy of Actuaries, one single person in retirement spends 70% to 75% of what a couple spend. So on a per-person basis, the cost of living for singles is 40% to 50% higher than that for married people.1

That same math means that during peak earning years, singles may have less discretionary income to put toward savings than their dual-income counterparts. This is an even greater concern for women, who tend to earn less over their lifetime than men and also tend to live longer. "And with a single wage, any disruption in earnings through disability or job loss will have a greater impact on retirement saving than if you have a dual income to rely upon," Heiges adds.

Build a Safety Net

Without a spouse's income to lean on, singles should carefully construct their own financial backstop. That starts with an emergency fund to carry you through a crisis. The rule of thumb is to keep three to six months' worth of living expenses in short-term savings, but Heiges recommends bumping that up to between nine and 12 months' worth.

If you don't have a family to worry about, you may not need as much life insurance, Heiges says, but you should consider having both disability and long-term-care insurance. Most employers offer short-term disability in the form of sick leave. However, you still need to consider long-term disability coverage to fill gaps in income — and retirement savings — if you're out of work for several months. Long-term-care insurance should also play into the picture; it helps pay for professional care if you become ill and need assistance performing day-to-day tasks such as bathing, dressing and eating.

If you own a house, Heiges recommends opening a home-equity line of credit as an added cushion. As with disability and long-term-care insurance, you need to set up that line of credit before you need it, while you are still healthy and have a steady income. If you wait too long, you might not qualify.

Get Your Legal House in Order

Spouses already have legal standing to intercede if a partner becomes incapacitated. But if you're single, you'll need to have a health care directive and designate someone to assume powers of attorney for your finances and health. Many singles sign these powers over to siblings or other relatives, but it's also important to consider geography. If you don't have family living nearby, a close friend or even your lawyer may be a better choice.

Married couples also enjoy spousal inheritance rights, which come with a broad range of benefits that single people can't replicate, including unlimited estate-tax exemptions. Nonspouse beneficiaries don't have that luxury, so you need to consider the estate-tax implications of anything you want to pass on to your heirs. "Trusts and other legacy-planning tools can help you pass your assets on efficiently and ensure that they are distributed the way you want," Heiges says.

Speak with a Merrill Lynch Financial Advisor today to make sure that the life you've planned in retirement reflects the financial freedom you've worked hard to achieve.

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