When it comes to retirement planning, single women face unique considerations and challenges compared to couples. For starters, they must rely entirely on their own resources and finances to build their nest egg. There's no sharing of housing, bills, or groceries, nor can they access a partner's healthcare benefits—factors that could otherwise help reduce overall living expenses and leave more money for savings.
Ultimately, single women bear sole responsibility for saving and financially preparing for retirement. They don't have the option to rely on a spouse's Social Security benefits, pension, or retirement savings. While it may pose challenges, saving for retirement as a single person is achievable!
If you haven't started already, your 60s is a great time to start getting serious about that next phase of life. I've compiled a guide outlining nine steps you can take now to boost your retirement confidence.
1. Get serious about how much longer you want to work
In order to effectively plan for retirement, you need to have an end goal in mind. Too often I see individuals seek out retirement planning when they are only months or weeks away from their proposed separation date. Take these steps to proactively start thinking about your retirement date so you can retire on your terms with confidence:
Assess Financial Readiness: Evaluate your financial situation to determine if you have enough savings, investments, and other sources of income to support your desired lifestyle in retirement. Calculate your anticipated retirement expenses and compare them to your expected retirement income to ensure financial readiness.
Consider Retirement Goals: Reflect on your retirement goals, aspirations, and priorities. Think about what you want to accomplish during retirement, such as traveling, pursuing hobbies, spending time with family, volunteering, or pursuing new interests. Consider how your retirement timing aligns with your personal and professional goals and what you hope to achieve in retirement.
Evaluate Health and Well-being: Assess your health status, energy level, and overall well-being. Consider how your physical and mental health may impact your ability to continue working and your quality of life in retirement. Factor in any health concerns, chronic conditions, or lifestyle factors that may influence your decision to retire, such as stress, burnout, or the desire for more leisure time.
Explore Flexible Work Options: Consider transitioning to a more flexible work arrangement, such as part-time work, job sharing, remote work, or consulting, as an alternative to full retirement. Explore options for phased retirement or gradual transition from full-time work to retirement to help ease the transition and maintain a sense of purpose and engagement.
2. Maximize retirement contributions
If you're in your 60s, you're likely in the final stretch of your working years and only have a few years left to contribute to retirement accounts. While you're still working, contribute as much as possible to retirement accounts such as 401(k)s, IRAs, or other employer-sponsored plans. Individuals aged 50 and older can make catch-up contributions to their retirement accounts.
- 401(k)s: In 2024, the catch-up contribution limit for 401(k) plans is an additional $7,500 on top of the $23,000 regular contribution limit.
- IRAs: In 2024, the catch-up contribution limit for IRAs is an additional $1,000 on top of the $7,000 regular contribution limit.
3. Don't be afraid to downsize
As a result of various life events, single women can often find themselves in a home that is larger than their needs. You may want to consider moving into a smaller home to create a living space that is entirely your own, but also for a few financial reasons:
- Lower maintenance costs: A smaller home typically means lower maintenance costs, including repairs, utilities, and property taxes, freeing up funds for other essential expenses or leisure activities.
- Unlock equity: Downsizing often allows for unlocking equity, providing a financial cushion for retirement years.
- Less upkeep: More manageable space can enhance comfort and ease of living as mobility may become a consideration with age.
4. Estimate your social security benefits
With pension benefits becoming rare, Social Security will be one of, if not the most significant source of income in retirement for many single women. It is important to know approximately how much you can expect in benefits as you try to determine when you can retire. Also keep in mind that widows and divorced individuals may be eligible for benefits based on the deceased or former spouse's work record. Follow these steps to view your estimates:
Create a Social Security Account: Visit the official website of the Social Security Administration (SSA) and create an account if you don't have one already. You can do this by providing your personal information and creating a username and password.
Review Your Statement: Once logged in, you should be able to access your Social Security statement. This statement provides estimates of your future retirement, disability, and survivor benefits based on your earnings history.
Verify Your Earnings History: Make sure that your earnings history, which is used to calculate your benefits, is accurate. If you notice any discrepancies, you may need to provide documentation to correct them.
View Your Benefit Estimates: Within your account, you should be able to view estimates of your retirement, disability, and survivor benefits based on different retirement ages. These estimates are calculated based on your earnings history and other factors such as your age and projected future earnings.
Explore Different Scenarios: You can use the online tools provided by the SSA to explore different scenarios, such as retiring at different ages or continuing to work while receiving benefits, to see how they would impact your benefit amounts.
5. Review and adjust investments for risk
Up until this point, you were likely primarily focused on growing your pot as big as possible. As your transition from accumulating your assets to using them for income, it is important to review your investment risk for several reasons:
Protecting Your Retirement Savings: As you near retirement, your investment time horizon typically shortens. This means you have less time to recover from any significant losses in your investment portfolio. Adjusting your investment risk can help protect the savings you've accumulated over your working years.
Reducing Volatility: Investments with higher risk levels often come with increased volatility. Large fluctuations in the value of your investments can be unsettling, especially when you're relying on those funds for retirement income. By lowering your investment risk, you can reduce the volatility in your portfolio and create a more stable source of income in retirement.
Generating Income: Many retirees rely on their investment portfolios to generate income in retirement. By adjusting your investment risk, you can shift your portfolio towards investments that provide more stable income streams, such as bonds or dividend-paying stocks. These investments can help supplement other sources of retirement income, such as Social Security or pensions.
Managing Longevity Risk: Longevity risk refers to the risk of outliving your retirement savings. As life expectancy increases, retirees need to ensure that their savings last throughout their retirement years. Adjusting your investment risk can help mitigate longevity risk by creating a more sustainable income stream that can support you for a longer retirement period.
Aligning with Retirement Goals: As you approach retirement, your financial goals may shift from accumulation to preservation and income generation. Adjusting your investment risk allows you to align your investment strategy with your changing goals and priorities, ensuring that your portfolio is positioned to meet your needs in retirement.
6. Consolidate old retirement accounts
Long ago are the days where we stay at the same company for our entire 40 year career. Many women are fast tracking their careers by changing jobs more frequently in pursuit of better opportunities and more pay. As a result, it is easy to accumulate multiple retirement accounts across several different institutions. As you get ready for retirement, it is the perfect time to consider consolidating these accounts to one or two providers for the following reasons:
Simplified Management: Having multiple retirement accounts can make it challenging to keep track of your investments, contributions, and performance. Consolidating your accounts into a single account simplifies management, making it easier to monitor your portfolio's overall performance and asset allocation.
Reduced Fees: Many retirement accounts charge administrative fees and expenses, which can eat into your investment returns over time. By consolidating your accounts, you may be able to reduce or eliminate duplicate fees, resulting in cost savings and potentially higher investment returns.
Easier Retirement Planning: When all your retirement savings are in one place, it's easier to track your progress towards your retirement goals and make adjustments as needed. Consolidating your accounts can simplify retirement planning and help ensure that your investment strategy aligns with your long-term financial objectives.
Simplified Required Minimum Distributions (RMDs): Once you reach the age of 73 (or 75 if you turn 74 after December 31, 2032), you are required to start taking annual withdrawals, called Required Minimum Distributions (RMDs), from certain retirement accounts, such as traditional IRAs and employer-sponsored retirement plans. Consolidating your accounts can streamline the RMD process by allowing you to calculate and withdraw the required amount from a single account rather than multiple accounts.
Potential Investment Opportunities: Some retirement accounts may have limited investment options or restrictions on certain types of investments. Consolidating your accounts into a single account may provide you with access to a broader range of investment opportunities and greater flexibility in managing your portfolio.
7. Get your estate plan in order
This is a crucial financial planning step that I often see deprioritized by working women. Life gets in the way and we think we are invincible. I strongly encourage everyone, especially single woman, to take the following steps to create an estate plan:
Assess Your Assets and Debts: Start by taking inventory of all your assets, including bank accounts, investments, real estate, retirement accounts, life insurance policies, and valuable personal property. Also, make note of any debts or liabilities you have.
Identify Your Beneficiaries: Determine who you want to inherit your assets upon your passing. This may include family members, friends, charitable organizations, or other individuals or entities. Consider contingent beneficiaries in case your primary beneficiaries predecease you.
Choose an Executor/Personal Representative: Select someone you trust to administer your estate and carry out your wishes according to your estate plan. This person will be responsible for tasks such as distributing assets, paying debts and taxes, and handling any legal proceedings.
Create a Will: A will is a legal document that outlines your wishes regarding the distribution of your assets after your death. In your will, you can specify beneficiaries, designate guardians for minor children or dependents, appoint an executor, and make other important decisions. It's advisable to work with an attorney experienced in estate planning to ensure that your will is valid and complies with state laws.
Consider a Trust: Depending on your circumstances and goals, you may want to create a trust as part of your estate plan. A trust allows you to transfer assets to beneficiaries while specifying how and when distributions should be made. Trusts can offer benefits such as probate avoidance, privacy, and asset protection. Consulting with an estate planning attorney can help you determine whether a trust is appropriate for your situation.
Establish Advance Directives: Create documents such as a durable power of attorney and healthcare directive (also known as a living will) to designate someone to make financial and medical decisions on your behalf if you become incapacitated. These documents ensure that your wishes are followed regarding medical treatment and financial matters if you are unable to express them yourself.
Review and Update Regularly: Estate planning is not a one-time event—it's essential to review and update your estate plan periodically or after significant life events such as marriage, divorce, birth or adoption of children, changes in financial circumstances, or the acquisition or sale of assets. Keep your estate plan current to reflect your current wishes and ensure its effectiveness.
Communicate Your Wishes: Once your estate plan is in place, communicate your wishes to your loved ones, executor, and any other relevant parties. This can help prevent misunderstandings and ensure that everyone understands your intentions.
8. Start thinking about your longevity plan
As we like to say here at Compass Financial Group, retirement is a journey not a destination. Retirement is going to take you through many phases of life which could start out with travel and spending time with family and friends to your later years of retirement dealing with healthcare management. Make sure you have a plan for every phase of retirement, not just the "bucket list" years.
Healthcare and Long-Term Care Planning: Plan for healthcare expenses and potential long-term care needs as you age. Explore options for health insurance, Medicare coverage, supplemental insurance policies, and long-term care insurance to help cover medical costs and protect your assets. Consider how you will manage any chronic health conditions or disabilities that may arise in the future.
Lifestyle and Social Connections: Cultivate a fulfilling lifestyle that promotes social connections, personal interests, and meaningful activities. Stay socially engaged by participating in community events, joining clubs or groups, volunteering, or pursuing hobbies and interests. Maintain strong relationships with family and friends to provide emotional support and companionship as you age.
Housing Considerations: Evaluate your housing needs and preferences for the long term. Consider factors such as accessibility, safety, affordability, and proximity to essential services and amenities. Explore options such as aging-in-place modifications, downsizing to a smaller home or senior-friendly community, or moving to a retirement community or assisted living facility if necessary.
9. Seek professional guidance
By now you are probably a bit overwhelmed thinking about all the steps you need to take between now and retirement. Please remember that you do not have to do this alone. A trusted financial professional can not only provide expertise, but also hold you accountable to make sure you are making progress towards your goals. If you'd like to partner with a financial planner to assess your retirement readiness, please contact me for a complimentary consultation. And, as always, if our firm is not a good fit to help you, I will make sure you find the help you are looking for.