Allworth Co-CEO Scott Hanson shares a few ways married couples have distinct advantages when saving for retirement.
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Be ye single, or be ye married, while there are aspects of planning for retirement that aren’t necessarily impacted by your relationship status, there are some key differences that I believe it’s beneficial to understand. After all, familiarizing yourself with the planning process adds perspective.
For instance, while to retire well, a single person must save more money than either member of a partnership must save individually, partners typically must cumulatively save more.
Easy, right?
There’s also something of a savings enthusiasm gap between married and single people. Case in point, as of 2018, 43% of singles were actively saving for retirement, while more than 63% of married people were. 1
Logistical. Legal. Legislative. As you’ll see, besides mere numbers of savers, when it comes to saving and planning for retirement, couples have advantages.
However, these advantages are not entirely due to enthusiasm. Case in point, two people are just more likely to have access to an employer sponsored defined contribution plan (401(k)) than one person.
What are some other differences between retirement planning for single people versus duos?
I not only write about Social Security almost every month, I talk about it pretty much every day.
There’s a reason.
Myriad potential changes to the program aside, one reason Social Security is such a hot button topic is obvious: You’ve paid into the system for 40 years, so you want to get something out.
And, so, whether you’re counting on Social Security to pay your bills, or merely to augment your other income – or whether you simply just want what you’ve been promised – the fact remains that you don’t want to leave any money on the table.
That said, Social Security, like so many other aspects of retirement preparation, is designed to benefit people who are married.
How so?
Single people have all of nine different filing approaches and are virtually 100 percent responsible for generating their own payout amount. Married couples, conversely, have a cruise-ship-dinner-buffet-like 81 different filing strategies for maximizing benefits.
“I’ll take the Advantages of Social Security and Marriage for $1,000, please, Alex.”
In short, whether applying (and retiring) at different times, or via the work history of your spouse, legally conjoined partners should tailor the timing and the approach of their applications in a way that brings in the most possible money over time.
Is it unfair that only one spouse must have accumulated enough work history to enable a partner who has never worked to receive some level of benefit?
Not really.
Among other aims related to helping homemakers, or the disabled, spousal benefits help protect the partner who stayed home and raised the children from the risk of becoming destitute if the working partner becomes deceased.
With that in mind, I won’t go so far as to say that the inequities of Social Security alone make long-term planning for retirement that much more crucial for single people. Instead, I’ll just say that being single and saving for retirement presents a long list of its own unique challenges that are difficult to overcome without a plan.
As it relates to singles and saving for retirement, another disadvantage is that couples who both have a 401(k) can defer paying taxes on twice the amount of income. And, even if couples can’t save the maximum allowable amount each year, they have the luxury to decide which of their plans is superior and then focus their contributions there.
Another big married-over-single retirement planning advantage is concerned with IRAs. A spouse who inherits an IRA can basically roll that money into his or her own IRA (or keep them separate and take distributions), whereas a non-spouse beneficiary doesn’t have the rollover option.
As you age, the more likely it is that you’ll worry about who will be there for you when your health declines. Married people not only have one another, they typically have kids and grandkids: Potentially offering up support, transportation, and even options about where to live.
That’s why single people absolutely must focus on building up a great big support system, which includes medical professionals, financial professionals, trusted, reliable friends, extended family members, neighbors, and other acquaintances and paid professionals.
My experience has been that those single people who focus on building a large support system have substantial financial, logistical, and emotional advantages over those who don’t.
Your retirement plan is a living, breathing entity. And, just as people with children will tell you that you never stop being a parent, be ye single, or be ye married, because personal circumstances are constantly changing, you and your advisor will never stop working on updating your plan.
COVID-19 has impacted the retirement preparation momentum for millions of people, and even the Social Security Administration has recently admitted that they are currently unable to calculate the pandemic’s short or long-term impact on that vulnerable program.
Stay ahead of the game by educating yourself, and please call our offices if you have any questions.
1 https://www.cnbc.com/2017/06/02/how-married-couples-can-maximize-their-social-security-benefits.html