The single person's guide to retirement

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From the Merrill Edge Minute e-newsletter.
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

Single adults tend to spend less time planning for retirement than their married counterparts do, but we also know that most everyone has a vision of what they'd like to achieve in retirement, according to Debra Greenberg, director, IRA Product Management at Merrill Lynch. 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. You'll have to consider your vision of retirement when you are planning how much you'll need to save.

Make saving a habit

Studies show that Americans aged 65 and over are concerned about the possibility of running into serious financial troubles in retirement. At the top of the list of concerns is: that their investments and savings won't keep up with inflation (52%), healthcare will prove too expensive (47%), and their savings will be depleted (43%).Footnote 1
As a group, singles tend to have less saved by the time they get to retirement. According to a study by the National Bureau of Economic Research done in 2011, the average married household has nearly 10 times more saved by the time they retire than a single-person household does, and on a per-person basis, the cost of living for singles is 40% to 50% higher than that for married people.Footnote 2
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. In addition, you have to consider that life happens, and an event that takes you out of the workplace like disability or loss of a job has a greater impact when there is only one income in a household," Greenberg says.

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 Greenberg suggests that, it may make sense to keep between 9 and 12 months expenses, or even more depending on your situation, in an emergency fund.
Even if you don't have a family, 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, opening a home equity line of credit may be an option for additional funds. 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 and domestic partners 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. "Ensuring you have your wishes spelled out is critical so you can make sure your assets are distributed according to your wishes," Greenberg says.

Footnote 1 Matthew Greenwald & Associates. "2015 Risks and Process of Retirement Survey." Society of Actuaries report.

Footnote 2

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.