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Retirement Planning for Single People as Opposed to Couples

A reader recently wrote in, asking about the difference between retirement planning for a single person as opposed to for a couple.

Overall, the same basic principles apply:

  • It’s always a balancing act of maximizing living standard now as opposed to running the risk of depleting your savings;
  • The same portfolio construction/management principles apply (diversify, minimize costs, pay attention to your risk tolerance);
  • General tax planning principles are unchanged (e.g., Roth conversions are useful in years when your marginal tax rate is low); and
  • Insurance planning principles are unchanged (i.e., if you can’t afford to pay for a cost out of pocket, you should strongly consider insuring against that risk).

As far as the implementation of those principles, however, there are two primary differences:

  1. The length of retirement will likely be shorter, and
  2. There are fewer discrete stages of retirement to plan for.

Shorter Planning Horizon

With regard to the length of retirement, the lifespan you have to plan for is naturally shorter when there’s only one person involved (rather than having to plan for the “second to die” lifespan of a couple). This shorter planning horizon has several consequences. For example:

  • A given withdrawal rate from the portfolio is safer for a single person than for a couple of the same age,
  • Funding basic needs with a bond ladder of a given length is safer for a single person than for a couple of the same age, and
  • Self-insuring for long-term care requires a significantly smaller amount of savings.

Fewer Stages of Retirement

For a couple there are distinct “two people” and “one person” stages. And that creates some planning opportunities/complexity that are not applicable for a single person.

As far as spending, for a couple there will be a point at which one spouse dies and total spending falls considerably, suddenly. For an unmarried person, there will obviously be no such sudden change.

As far as income planning, for a couple there will be decreases when each spouse retires, increases when each spouse begins claiming Social Security, possibly another increase when one spouse switches from a smaller benefit to a larger benefit (e.g., starting their own retirement benefit after having collected spousal benefits for some years), and a decrease when either spouse dies and the smaller Social Security benefit disappears. For a single person, there are fewer times at which income will change — usually just a decrease upon retirement and an increase when Social Security begins.

As far as tax planning, every time that income level changes, there is likely to be a change in marginal tax rate. Similarly, when one spouse dies and the other begins using “single” tax filling status, there will often be an increase in tax rate due to smaller tax brackets. All of these different changes in tax rate over time create tax planning complexity that an unmarried person wouldn’t have to worry about.

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