What Solo Retirees Need to Know

As I'm sure you've noticed, and this is by design, we cover a wide variety of retirement and related topics in our weekly newsletter.

I appreciate your feedback as it also helps us make sure the topics are current and relevant.

When I share different planning ideas, I've noticed several of our clients mentioned that they enjoyed hearing my thoughts but unfortunately they didn't apply to them.

For many of these clients, there was one common denominator.

They were single retirees so the strategies that work for couples, such as Social Security benefits maximization, simply don't apply to them.

I don't have any precise math, but close to a third of our clients, if not more, are single.

So I'm dedicating this newsletter specifically to those who, for a variety of reasons, plan to retire solo.

Even if you have a partner, I still suggest that you keep reading as the concepts I share can be helpful to you or your friends or family at some point in the future.

More cash reserves

I will start with some basics here that are hopefully intuitive to many but still worth highlighting.

The standard planning approach is to maintain anywhere between 3 to 6 months of your regular expenses in reserves.

You just never know when your car or HVAC unit breaks down!

When I work with couples, I noticed they frequently prefer to keep less in cash, perhaps closer to 3 months of their expenses.

This is logical because they frequently have two incomes or multiple other sources of funds if they are in retirement (e.g. two Social Security incomes).

Although I prefer all of our clients to have six months of expenses in an emergency fund, couples can often get away with keeping closer to 3 or 4 months' worth.

But for a solo retiree, an unexpected medical event or a costly home repair falls entirely on you.

To absorb these shocks without stressing too much, keeping close to or even over 6 months in an emergency fund is not a bad idea.

Increasing this emergency fund to nine months or even a year can provide an even greater sense of security as a solo retiree.

So keeping more in reserves even though it costs you some investment returns is just not a bad idea!

Investment allocation

As a solo ager, you really want to get the split between stocks (growth) and bonds (protection) right.

One of the biggest mistakes single people make is becoming overly conservative in the early years of their retirement.

This is understandable because they have to rely on themselves.

But think about it.

If you are a younger retiree, let's say in your mid or late 60s, you need your portfolio growth to support you in the later years of your retirement.

You won't inherit your spouse's Social Security, pension or life insurance benefits.

The bottom line is single and/or younger retirees should spend more time making sure their investment allocation is appropriate for them and stay away from popular rules of thumb!

Prepare for the single tax "penalty"

Unfortunately, this is the kind of "penalty" that many solo retirees do not recognize until their spouse is no longer around.

In short, the tax system can be more aggressive for solo retirees than joint filers.

When you file taxes as an individual, your standard deduction is cut in half and your tax brackets are tighter.

This means your regular retirement account withdrawals can easily push you into a higher tax bracket.

It can also trigger unexpected surcharges that raise your Medicare premiums.

One approach I frequently discuss is to be proactive with Roth conversions during your early retirement years.

This shifts your money into a tax free status and gives you much more control over your future income.

This is not to imply that Roth conversions are for everyone as you need to understand the impacts in both the short and long term.

At the very least, being mentally prepared and ready to accept the reality of a higher tax bracket may be all you can do here.

Build your support network and community

This is a crucial part of a comprehensive retirement plan for solo agers.

Without a partner to help out, you will eventually need paid services that help with the logistics of life.

This includes tasks like home maintenance, technology troubleshooting, accounting and even arranging rides home from medical procedures.

What may be more urgent though, is building your social network early on in retirement.

Social isolation is a big factor in the decline of mental health and overall wellbeing that specifically impacts solo agers.

You may want to consider moving early into an active independent living community or at least a vibrant neighborhood.

Explore the concept of villages in your area where "neighbors help neighbors."

Making a strong friend group and enjoying weekly social events can go a long way in this area.

Planning for solo long term care (LTC) needs

This is another must consideration specifically for solo agers.

For couples, the initial plan for a health crisis usually involves relying on their spouse.

Solo agers don't have this luxury and need to have a different plan in place ahead of time.

If you're planning early enough in your life, you could explore whether a separate long term care insurance policy is right for you.

If you're already close to or are in retirement, it would make more sense to earmark a certain amount of your investments for this need.

You need to have a clear understanding of how your potential LTC expenses would be covered.

Also consider adding features to your home like automatic fall detection systems, grab bars or stair lifts.

This applies to couples too but even more so for solo agers as you usually don't have anyone around in your house.

Assign a trusted contact person

A spouse is usually the first person to notice subtle signs of cognitive decline or memory changes.

For a solo retiree, a gradual decline in financial decision making can go unnoticed until a major mistake occurs.

To protect yourself, consider adding a Trusted Contact Person to all your banking and investment accounts.

This authorization allows your financial firm, such as Capital Squared Financial (CSF), to contact a designated person if they notice highly unusual account activity or sudden confusion.

These trusted people won't have any actual control or access to your money, but they're there to help keep you safe as you age.

Please note that adding a trusted contact person doesn't replace a need to have a well structured estate plan.

Get your estate plan in order

Speaking of estate planning, so many people put off taking care of this important part of their plan…

In my experience, unless there are specific estate needs, a relatively simple estate plan is frequently what's needed for a couple.

But this is not the case for a solo ager.

Taking care of the key legal documents early is critical for protecting your independence.

If you don't do this yourself ahead of time, a court or a hospital admin may make vital decisions on your behalf.

At the very least, make sure you have a will, a Medical and Financial Power of Attorney (POA) and updated beneficiary designations in place.

These are the documents that protect you when you can no longer speak for yourself.

What this means to you

A reliable retirement plan is one that considers the needs that arise when you inevitably become a solo ager.

I know it's not a pleasant topic to think about your spouse (and best friend) being no longer with you.

But it is an unfortunate reality that is wise to plan for or at least understand the consequences.

With these considerations in place, I believe you will be better off and ready for the curveballs of life as a solo retiree.