If you’re single and nearing retirement, your financial needs require special attention, especially if you’re divorced, widowed, or have never been married. While being single grants you the freedom to live life on your terms without the challenges of a spouse with conflicting views or financial habits, it also comes with unique responsibilities.
As the sole earner, you must create a solid budget and financial plan to secure your future. You must navigate potential challenges such as inflation or an impending recession with a single income. Moreover, staying informed about recent changes in laws, rules, and policies, such as the SECURE Act 2.0, enacted by Congress at the end of 2024, is crucial for making informed financial decisions.
Managing all living expenses alone can present significant challenges, particularly when considering the anticipated recession in 2024, persistent inflation, and the volatility of the market. These factors will continue to have a lasting impact on retirement planning for the foreseeable future.
So how do you manage to ensure your financial stability? Financial professionals recommend the following steps:
#1 Educate yourself:
Whether you have experience managing money or have relied on a partner before, it’s essential to be well-versed in Social Security, Medicare and required minimum distributions (RMDs) from retirement savings accounts like 401(k)s and IRAs.
If you’re divorced or widowed, understanding the rules surrounding Social Security’s ex-spouse and survivor benefits is crucial. Additionally, consider delaying your Social Security retirement benefits until you are 70 to maximize your monthly payments.
#2 Seek professional advice:
Consider hiring a financial planner to develop a comprehensive retirement plan tailored to your specific circumstances. Surprisingly, only about a third of Americans work with a financial adviser, according to a 2024 study by Northwestern Mutual. A financial planner who helps you analyze your lifestyle expenses, assess retirement affordability, and examine Social Security and Medicare implications.
If you are considering the cost impact of hiring a financial advisor, here is the average:
- On average, financial advisors typically charge an annual fee of 1.02% of assets under management (AUM) for an account valued at $1 million.
- This fee is attributed to the active management of portfolios, which involves a team of investment professionals executing trades and transactions, resulting in higher costs.
- Financial advisors who provide passively managed portfolios generally impose lower fees. This approach involves a more hands-off strategy, where investments are typically tied to market indexes rather than frequent buying and selling activities. As a result, the fees associated with passively managed portfolios tend to be comparatively lower.
#3 Stay updated on RMD changes:
The recently introduced SECURE Act 2.0 brings changes to required minimum distributions. These changes affect your retirement income planning. For instance, the age at which you have to take RMDs has increased from 72 to 73; the age will rise to 75 in 2033. Understanding these changes and planning accordingly can help you reduce your tax burden on retirement savings.
#4 Develop and test your retirement budget:
Collaborate with an adviser to review your spending plan, considering inflation and potential recessions. This evaluation ensures an adequate emergency fund to mitigate unexpected financial challenges. Single individuals, particularly those who have been widowed, may need to adjust their income plans due to changes in Social Security benefits and pension availability.
#5 Build a reliable team of advisers:
In addition to a financial planner, assemble a team of experts who can guide you in various areas. Consult with an attorney to establish essential legal documents like a will, living will, powers of attorney, and a revocable living trust, especially if you don’t have a spouse to step in during emergencies. Professionals can help manage your affairs in case of incapacity or lacking trusted family members.
#6 Consider long-term care needs:
The need for long-term care in the event of illness or incapacitation makes it important to evaluate whether long-term care insurance is necessary. Such insurance becomes more relevant without a spouse to rely on for caregiving. Alternatively, explore hybrid life insurance policies that offer long-term care coverage as a rider, enabling a portion of the death benefit to be allocated towards fulfilling such needs.
#7 Organize your documents and digital files:
Take the necessary steps to organize your important records, financial accounts, insurance policies, and work-related benefits. Create a binder containing all your legal documents, including a comprehensive list of your financial accounts and utility bills. Additionally, consider establishing a digital plan and granting legal authority to your designated personal representative or executor to access your online accounts and digital assets. Keep clear instructions and ensure that everything is regularly updated. This will enable your representative to manage your assets, settle debts, and inform others of your passing via email and social media.
By implementing these strategies, you can gain the knowledge and confidence needed to make well-informed financial decisions, effectively plan for your retirement, and safeguard your financial future as an individual. Remember, seeking professional advice, staying informed, and organizing your finances are key elements in navigating the complexities of retirement planning.