...And Now for the Bad News

By Mary Young

In our most recent article, we shared some good news for Solo women: According to a 2022 study by the Center for Retirement Research at Boston College (BC), women who have spent most of their adult lives single are, by the time they are age 59-60, about as financially prepared for retirement as women who are mostly-married.

That comes as a surprise to most people. In fact, one reader wrote to say these findings were absolutely wrong. In fact, they don’t fit with what we see among our Solo clients. In a future article, we’ll discuss the reasons for this disconnect between economics and individual people.

But here's the thing: The BC study looked only at a financial snapshot taken at a single point in time, before normal retirement age.

More importantly, it looked only at the assets side of the ledger. It doesn't take into account two other critical considerations: expenses and income. Yet those are where the financial gaps between mostly-single versus mostly married women are most likely to increase.

Expenses

The costs of aging are higher for singles—especially for those who don’t have children (AKA Solos), as we explain below. These higher expenses frequently put Solo women at a financial disadvantage—that is, unless they recognize and plan for them in advance.

Here are some of the incremental expenses that older, unmarried women without kids may be saddled with, that married parents often are not:

• Living expenses “Two can live as cheaply as one,” sums it up neatly: Mortgage or rent, food, home maintenance and repairs, heating, internet, vacations, gifts, and many other expenses are divided between two people, rather than shouldered by one.
• Personal care needs Younger retirees may be able to remain independent and self-reliant, as they always have. But that is less likely as they get older. In fact, 70% of adults who turn age 65 between 2020 and 2025 will need some form of long term care in the future, and women will need it longest (3.2 years versus 2.3 years for men). 1 “Retirement has a very long arc,” says Allen Davis, CFP, Managing Partner of the Davis Financial Group. “These expenses come towards the end of their lives.”

Many Non-Solos can rely—at least in theory— on members of their immediate family to provide care. In fact, families provide more than 95 percent of informal (non-institutional) care for older adults. ² Solos who eventually need more help may have to pay for it. Long term care (LTC) insurance will also cover some expenses. Yet, in our experience, Solos are less likely to have a LTC policy than are married couples. And if they do, they pay more per-person than do couples who purchase a “shared care” contract.

Even with long-term care insurance, there are many out-of-pocket expenses that LTC doesn’t cover, such as rides to doctors’ appointments and short-term care after an illness or surgery. While friends and neighbors may be able to help for a while, Solos may eventually need to pay out of pocket for help with yardwork, home repairs, bill-paying, housekeeping, grocery shopping, and preparing meals.

• Other professional services In many cases, a spouse or children provides informal advice,
  coordination, and oversight in many areas of their partner or aging parent’s life. They may serve as healthcare proxy, durable power of attorney, trustee, executor.

Many Solos designate friends to play these roles, but such arrangements may become less viable over time. (Friends also age, move away, or die.) For Solos who can afford it—and have planned for it in advance—there’s another alternative: They can hire professionals such as an aging life care manager, a patient advocate to coordinate medical care and help navigate a complex system, a Trust Company or another fiduciary, a daily money manager, trustee(s) to carry out your intentions though your estate, and personal representative (formerly known as an executor). Hiring professionals can help bridge this gap, but it definitely ups the costs, well beyond the means of many Solos.

• Tax penalties Certain taxes are more favorable for couples than for singles. When selling a home, for example, you are taxed for any profit (capital gains) above a certain threshold. For couples, it’s $500,000. For single people, it’s half that. As a result, if a Solo and a couple each owned an identical home and netted an identical amount when they sold it, the Solo might pay higher capital gains taxes than the couple.

Income

In addition to these higher expenses, Solo women (as well as Solo men) may lose out on additional retirement income that married women get later on, when they are older than the women in the B.C. study.

• Home equity Many retirees look to the equity they’ve built as retirement income, should they need it. Since Solos often live in smaller spaces than couples do, that equity is also smaller, which translates to smaller assets that could be cashed in (for example, through a reverse mortgage or a home sale).
• Life insurance Widows and widowers are often the beneficiaries of their spouse’s life insurance policies. Because these proceeds are tax-free and fully liquid, they can go a long way toward shoring up the surviving spouse’s retirement finances.
• Family inheritance It’s not uncommon for people who are roughly retirement age to receive an inheritance when their parent dies. Couples have two sets of parents, which doubles the odds this will happen, compared to Solos, with just one.

What This Means for Solos

That’s a heavy dose of bad news, if you’re Solo. But it’s important for Solo women—who, after all, have ample experience in taking care of themselves—to understand what they can do now to prepare for a variety of scenarios that may lie ahead.

That’s where having a financial planner comes in.

How Solos Can Overcome the Higher Cost of Aging

“The truth is, Solos need financial planning even more than non-Solos do,” says Davis.  In theory, older adults who have a spouse/partner and/or children have a built-in cushion to soften some of aging’s bumps and blows. Ideally (although not always in practice), immediate family can provide at least some support.

But many Solos don’t have this built-in, family support system—which is why working with a financial planner can be especially helpful.  Nevertheless, two thirds of single adults do not have such an advisor. Moreover, just 39 percent of single adults feel “very secure” financially, compared to 56 percent of those who are partnered.  

There are many reasons why Solos may be reluctant to contact a financial planner: They believe only rich people have financial planners. They think they can’t afford one. They may be embarrassed to have waited so long to seek professional advice. They might be ashamed that nest egg is so small. Sometimes they’re paralyzed by the fear of running out of money in old age so they just block it out.    

Over a quarter of our clients are Solos. Some started working with us in their 30s, 40s, or 50s, but most came later. In some cases, we decide they can stay the course exactly as they have been doing. Even so, we continue to check-in every year or so, just to make sure things are still looking good and offer advice at critical decision point: Begin taking Social Security benefits? Sell the house? Liquidate retirement funds now, ahead of the annual.

For most clients, however, we can suggest alternative moves to increase their financial security and confidence in the years ahead.  When needed, we can also point them to other professionals such as estate attorneys, patient advocates, real estate advisors, aging lifetime care advisors, accountants, etc. to build a full-fledged team.

Our job, as financial planners, is to help you understand the financial risks and opportunities of aging Solo and work with you, side-by-side, to plan for your future.

¹Projections of the Need of Long-term Care Services and Supports, U.S. Department of Health & Human Services

²Aging in the United States, Population Reference Bureau

³Living Single in America, 2016 Planning & Progress Study, Northwestern Mutual Life Insurance Company.

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Securities and investment advisory services and financial planning services offered through qualified registered representatives of MML Investor Services, LLC, member SIPC, Supervisory office: 300 Whitney Avenue, Suite 600, Holyoke, MA 01040, Tel: 413-539-2000. The Davis Financial Group, LLC is not a subsidiary or affiliate of MML Investors Services, LLC.