Seniors aged 65 and above often reside independently in their homes. Here's what you need to consider for a solitary retirement.
Preparing Financially for a Solo Retirement
More and more older people are choosing to live alone, with over 51% of those living alone being aged 65 or over in 2021 [1]. This trend has significant implications for finances, as all costs must be covered individually. Here are some steps single retirees can take to prepare financially for a solo retirement.
Build Your Own Pension Pot
Avoid relying on your partner’s pension, even if married. Building a personal pension pot creates a financial buffer and gives you control over your funds. It's crucial to have your own savings, as relationship changes may leave you vulnerable with insufficient retirement savings [2].
Define Your Retirement Lifestyle and Costs
Forecast what kind of retirement lifestyle you desire and use pension calculators and budgeting tools to estimate the necessary savings. Consider the "single supplement" on things like holidays, as you won't be able to share costs with another person [2].
Budget Carefully for Solo Expenses
Single retirees face higher costs due to not being able to share bills, food, or travel expenses with another person. Be mindful of these additional costs and regularly review your budgets to prevent gradual increases in spending [2].
Consider Retirement Savings Options Suitable for Your Employment Status
If self-employed, options such as solo 401(k)s, SEP IRAs, and SIMPLE IRAs offer ways to save and reduce taxable income, with varying contribution limits and setup complexities [1][3].
Clear Debts Ahead of Retirement
Reducing or paying off debts like credit cards or mortgages before retirement can reduce monthly outgoings, improving financial freedom [4].
Build an Emergency Fund
Save three to six months’ worth of expenses in cash to cover emergencies without tapping into pension funds prematurely [4].
Plan for Legal and Fiduciary Issues
Establish powers of attorney and update wills to protect your interests and ensure smooth estate planning [4].
Stay Invested in Equities for Potential Growth
For a comfortable standard of living, a single person needs a pension pot that is £296,000 larger than an individual that is part of a couple [2]. To maintain the same lifestyle in a solo retirement, someone may need nearly double the pension savings of each member of a couple. For instance, the required combined pension pot for a couple might be about £418,000, meaning each individual would need around £209,000 if retiring as part of a couple—but a single person may need almost that full amount alone [2].
By following these steps, single individuals can prepare adequately for the increased pension requirements and financial challenges of solo retirement.
- To guarantee a more secure financial future, consider diversifying your savings into assets like gold as part of your overall retirement plan.
- Embrace the health-and-wellness lifestyle, as maintaining good physical and mental health can reduce healthcare costs in retirement.
- In addition to pensions and savings, consider potential streams of passive income, such as rental properties or dividend-paying stocks, to further solidify your financial independence.
- To maximize your personal-finance potential, consult with a financial advisor who specializes in lifestyle management for retirees to create a customized retirement plan that caters to your unique needs and preferences.
