Single folks investing and saving for retirement have some special planning issues for which financial advisers can offer valuable expertise.
Unlike married investors, single people are on their own without the additional retirement savings of their spouse to help build their retirement nest egg. Here are some issues that financial advisers can consider when helping single clients plan for their retirement.
Saving as much as possible for retirement is important for all, but especially so for single folks. They have only their retirement savings to count on. Be sure they are maxing out their 401(k) or other employer-sponsored retirement plan if they have one available.
You should also encourage them to contribute to an IRA as well. If they are self-employed, be sure they open and contribute to a Solo 401(k), a SEP-IRA or a SIMPLE IRA.
For those who have the option to do so, funding an HSA account is another way for single clients to help fund healthcare costs in retirement. To the extent that they can cover out-of-pocket healthcare expenses elsewhere while working, an HSA can serve as an additional retirement savings vehicle for them.
As a single person your client is the only one saving for their retirement. If they become disabled during their working years, disability insurance helps protect their lifestyle. Depending upon their situation, the cash flow from their disability insurance may allow them to continue saving for retirement, at least to some extent.
If the client has never been married, their decision as to when to claim their benefit will be relatively straightforward. If they are able to, it’s generally better to encourage them to wait as long so they can to maximize their benefits.
For clients who were previously married, the choices are a bit more complicated.
If your client is divorced, they can claim a benefit based upon their ex-spouse’s earnings record. The rules for claiming a benefit based upon an ex-spouse’s earnings record include:
- They must have been married to their ex-spouse for at least 10 years.
- They must not currently be married.
- They must be at least age 62.
- Their own benefit must be less than the benefit under their ex-spouse’s earnings record.
- The ex-spouse is entitled to Social Security retirement or disability benefits.
If your client is a widow or widower, they can apply for survivor’s benefits as early as age 60. The benefit at age 60 will be reduced and will increase each year until they reach their full retirement age (FRA). They can also apply for a survivor’s benefit and then switch to their own benefit as soon as they are eligible if it is larger. They can also wait until their FRA or age 70 to make this switch to receive a higher benefit.
Planning for long-term care needs is crucial for all retirees, but especially so for your single clients. Unlike married couples, there is no backstop in terms of a spousal caregiver. If your single client has never been married and childless, that potential caregiver option isn’t there either.
Long-term care insurance might be an option for these clients as a way to cover these costs.
Single clients may not have the support system of a spouse or the help of adult children, depending on their situation. They need to ensure they have a support system of friends or relatives to depend on for companionship and if they have health or other needs.
Additionally, as with all retirees, it's important for advisers to encourage their single clients to have a plan for what they will do in retirement. This might be travel, work or self-employment or other activities that they enjoy. While the financial part of retirement is your main focus as a financial adviser, you want to do your best to encourage your clients to have a fulfilling life in retirement.