ByJustin Pritchard, CFP®
While there may be some perks of living in a dual-income household, plenty of single people retire comfortably (and thrive). The math and retirement planning tools are the same whether you’re single or coupled, although there are a few areas that require extra attention.
In this article, we review some basic information about retiring solo, and we’ll cover some tips to help improve your chances of living the life you want in retirement.
What Is the Average Retirement Income for a Single Person?
Some context might help you understand what retirement may look like. But please remember that these numbers are national, and your comfort level depends on where you live. Plus, comparing yourself to others is “the thief of joy,” as they say, so it’s not necessarily catastrophic to be below these levels. As long as you can meet your needs, that’s what matters most.
The average retirement income for a single person over age 65 is roughly $42,000 per year. That income may come from Social Security, pensions, and other sources. The median income is just over $27,000 per year. As a quick math refresher, the average is higher because those with extremely high incomes can pull up the average.
That information comes from the U.S. Census Bureau, as reported by pensionrights.org.
Social Security Income
Social Security makes up a significant portion of income for most retired households. The average retirement benefit from Social Security is $1,543 per month, or $18,516 per year.
Pension Income
If you’re fortunate enough to receive pension income, those payments can supplement Social Security income. Depending on your job (if you worked for a government organization that doesn’t pay into Social Security), your pension could replace or impact your Social Security income. For example, the average monthly pension payment for teachers ranges from $14,000 per year to $63,000 and depends on numerous factors.
Continue reading below, or watch the companion video covering this topic:
Withdrawals From Savings
If Social Security or pensions don’t provide all of the money you need, you’ll likely supplement that income with any money you’ve saved for retirement. Most people spend from their retirement savings—assets built up in IRAs, 401(k) or 403(b) plans, and other investment vehicles.
How much do you need? It depends, but you can walk through an example of retiring with $50,000 of income (and use the calculator with your own numbers).
Live off the Interest?
If you’re like most people (that is, you’re not fabulously wealthy), you will probably spend down your retirement savings over the course of your lifetime. The idea of “living off the interest” is appealing, but it’s not realistic for most people. Interest rates are relatively low compared to previous decades, so the amount you could spend would be minimal.
How much can you spend from your investments each year? It’s smart to do a robust financial plan to determine an appropriate spending level. However, you can also make rough estimates with rules of thumb like the so-called 4% rule (or a safer 3% rule).
Withdrawal Rates
With that approach, you assume that you can withdraw 3% to 4% of your retirement assets each year and adjust the amount for inflation. For example, if you have $500,000 invested for retirement and you’re comfortable with a 3% withdrawal rate, you could pull $15,000 from your savings in your first year.
That might seem low. But this will be an amount that increases with inflation, so it needs to start low (you can read more about the strategy and its history using the link above). As a result, if inflation is 2% during your first year in retirement, you’ll adjust your withdrawal amount to keep up with inflation—so you can withdraw $15,300 in your second year of retirement.
As each year passes, you adjust with inflation.
Rules of thumb: This withdrawal strategy is simply a rule of thumb for ballpark estimates. I don’t have any clients who actually use it, and most people don’t spend money in a straight line, as the rule assumes. Plus, this approach ignores taxes and other important factors. Still, it can help you with ballpark retirement estimates. And please remember that there are no guarantees in life. The idea is to have your money last for a typical retirement, but it’s possible to run out of money (or need to make some adjustments to your spending).
- See video: What Taxes Do You Pay in Retirement?
How Much Does a Single Person Need to Retire?
The amount you need depends on things like your spending, longevity, investment returns, and other factors. A detailed financial plan can provide reasonable projections, and you can use the multiply-by-25 rule of thumb for a very rough estimate.
To determine how much money you need, you first need an estimate of how much you’ll spend each year in retirement. Then, you make some assumptions and create a plan of action that seems reasonably likely to come to fruition.
Multiply by 25: This rule of thumb is the opposite of the 4% rule. So, again, if you want to be conservative, you’d multiply by a larger number. For this example, let’s assume you want to withdraw $20,000 (before taxes) from your retirement savings. Multiplying that by 25, we arrive at a need of $500,000 in assets. Again, there’s no guarantee that this will last for the rest of your life, but the rule of thumb is designed to give you a decent chance. If you prefer a 3% withdrawal rate, you’d multiply by 33.3, instead.
For more numbers and calculations, see How Much Money Do You Need to Retire?
Average Retirement Savings
The average individual at age 65 has between $221,000 and $273,000 in retirement savings. The median is higher, ranging from $117,000 to $140,000. But survey results and studies can be hard to apply to your situation because you don’t know the details of the participants. That said, it is clear that women face bigger financial challenges than men when preparing for retirement.
See more statistics about the average retirement savings by age.
Tips to Improve Your Chances
Plan for Long-Term Care
This is critical for couples as well as singles. Even those who live with a spouse or partner need to question whether or not the partner has the physical strength, time, and skillset to care for somebody with a serious condition.
Consider how you might handle the logistics of care—and pay for it—if you need it. You may want to earmark funds for this purpose, explore long-term care insurance, and discuss options with friends and loved ones. Get creative, and consider assets (such as home equity) that might provide a safety net, and explore the pros and cons of various choices. Revisit your choice periodically to see if a change is in order.
Creative living arrangements (or “looking out for each other”) can also help, assuming you’re open to that and you have trustworthy friends. Alternatively, you might consider retirement communities, sometimes with rules that allow people at age 55 or older. If you don’t want to move too many times during life (it’s never fun), that might be a solution. Plus, those communities may have options for more robust healthcare as you age.
Ultimately, the goal is to live somewhere that’s easy to manage and that helps you stay connected. If you can do that in a rural area for from others, that’s great. But some people might prefer being geographically close to services and a community of friends.
Don’t Leave Money on the Table
If you were previously married, you may have access to retirement income benefits. For example, you may be entitled to a widow’s benefit through Social Security based on a previous spouse’s work record. And if you were married for at least 10 years, you could be able to get spousal benefit on a living ex-spouse’s record. There may be other avenues available, so discuss your situation with Social Security or a financial expert.
Care for Yourself
If you have children (or other loved ones) and you’re like many caring parents, it’s tempting to support others financially. But that’s especially risky when you’re on your own. You can never know if others will be willing and able to support you if you run short on money. And if you rely on a single income, it’s harder to recover from financial setbacks.
You’ve heard it before: As hard as it is to say “no,” it may be helpful to remember the analogy of putting your oxygen mask on before helping others. Please be sure that you’re well taken care of before making substantial gifts and loans to adult children.
Think About Decision-Making
If you’re incapacitated, it may be helpful to enlist a trusted friend or family member to make decisions for you. That way, you can potentially reduce the impact on your finances, and you can improve the chances of any medical care happening the way you want it to. An estate planning attorney can help you set these things up, and it’s smart to start the conversation sooner than later.
- A power of attorney (POA) may be able to handle financial matters for you while you’re incapacitated. For example, they might pay bills for you, open and close accounts, get information, or take other actions. There are several options for POA arrangements, so discuss those details with your attorney.
- A healthcare directive allows you to specify what healthcare decisions you prefer, and you can name a person to make decisions while you’re incapacitated.
Cultivate a Network
There are numerous benefits to having a support network, and you might not need any encouragement here. Friends and loved ones who support and walk through life with you are invaluable, and those relationships can also have some utility (as bad as that sounds) as you age. Obviously, it’s important to be a genuine partner in your relationships, and no good comes of using others. But it’s fair to keep in mind how others can be helpful in times of need, and sometimes we all need a reminder to cultivate those relationships.
“Professional” relationships are also important. In addition to work contacts, it’s crucial to know of good contractors who can help with things around the house, trusted auto mechanics, and others who can provide quality services at reasonable prices.
Make a Financial Plan
I am, of course, biased, but this can be a helpful exercise. By understanding your finances, you can get more confident about your spending levels, you’re familiar with some of the risks and opportunities ahead, and you can explore different what-if scenarios before they strike. A fee-only financial advisor can help you make a plan with minimal conflicts of interest.
Besides the tips above, general retirement planning strategies are helpful whether you’re single or not. That means making smart decisions about your Social Security and pensions, investing wisely, and managing your spending during retirement.
Curious how much it costs to work with a financial planner? Take a look at my pricing page to get some details.
