While most of us tend to think of retirement as a joint financial planning process, the reality is that many people, whether as a result of death, divorce or choosing to remain single, have to plan for a single retirement. The unique circumstances and potential challenges facing those planning for a retirement alone bear further investigation which we attempt to do in this article.
Dual-income couples who are planning for a joint retirement enjoy a significant set of benefits which single pre-retirees generally don’t. Firstly, couples (whether both generating an income or not) benefit from the shared costs of living including accommodation, utilities, rates and taxes, food (to a certain extent), cleaning and garden services, Wi-Fi and connectivity, entertainment subscriptions, and possibly even transport. Where both partners generate an income, the couple has the advantage of being able to use two incomes to save for their joint retirement which, once again, is likely to include many shared costs. Further, while dual-income couples have each other’s income as back-up in the case of job loss, illness or disability, those relying on a single income face greater risks in the years leading up to retirement and, as such, risk cover will play a vital role in protecting their retirement savings. In particular, those planning a single retirement will need to ensure that they are adequately protected against loss of income as a result of ill-health or disability in the form of income protection and/or lump sum disability keeping in mind that they do not have a spouse’s income to fall back on should tragedy strike. They will also need to find a workable, tax-efficient balance between saving through approved retirement fund structures and discretionary investment portfolios to ensure that not all their retirement savings are compulsory – keeping in mind that this can cause cash flow and liquidity problems during their retirement years. The retirement planning industry (including retirement homes and complex developers) is mostly geared toward helping couples visualise, plan and enjoy their retirement together, which can make it more difficult for a single person to envisage and plan what retirement would look like for them. As retirement planners, it is therefore important that we identify and explore the specific planning needs of those intending to retire alone or those who find themselves alone at retirement.
When it comes to retirement living, single retirees will need to consider what their accommodation needs would look like if and when their physical and/or mental health deteriorates. Whereas retired couples have each other to rely on in the event of mental or physical ill-health, those who are single will need to plan carefully for incapacity. In this regard, single people planning for retirement may want to consider the following:
- Power of attorney: Without a spouse or life partner, those retiring alone may want to consider giving a trusted friend or close family member power of attorney over their affairs, especially as it becomes more physically challenging to attend to affairs in person. You will need to think carefully about whom you would trust with your affairs and the scope of the mandate you would be comfortable signing over to them. For instance, you may want to grant someone power of attorney to assist specifically with the marketing and selling of your fixed property, or a mandate to manage your bank account and investments.
- Living will: Without a spouse or life partner to speak on your behalf should you end up in a critical condition and unable to speak for yourself, consider signing a living will wherein you appoint a close friend or family member as medical proxy. Your medical proxy will be responsible for liaising with your doctor or medical practitioners to help guide them i
- Frail care or assisted living: It makes sense for a single person to plan ahead and budget for the costs of assisted living or frail care services later in retirement. Without the assistance of a spouse or partner, single retirees may find it necessary to access assisted living facilities earlier than if they had a partner to help care for them, keeping in mind that assisted living and frail care generally comes at an enormous cost.
- Support network: Maintaining a reliable and accessible support network is vital for single retirees, especially when requiring assistance with emergencies, logistical help, or emotional support. As such, the proximity of your retirement accommodation to your support network is an important retirement planning factor.
- Remaining engaged: While retiring couples largely benefit from each other’s companionship and interaction, those retiring alone should consider how they will remain socially engaged during their retirement years. While many pre-retirees find the stimulation and comradery of the workplace to be sufficient to fulfil most of their social needs, retiring from the workplace can leave many single retirees feeling lonely and unstimulated. As such, if you plan to retire alone, think carefully about how you intend to remain socially connected during retirement.
Single retirees also present a special set of estate planning requirements which retired couples do not face, specifically when it comes to distributing their wealth after death. While most couples tend to bequeath their respective estates to each other, single retirees need to think carefully about how their assets will be passed on and to whom. While married couples are able to benefit from Section 4q of the Estate Duty Act – which provides that all assets accruing to one’s surviving spouse on death are deductible from the gross value of one’s deceased estate and therefore excluded for estate duty purposes – no such deduction is available for single retirees. As such, reducing estate duty liabilities will no doubt be an important consideration for single retirees who thankfully have several estate planning mechanisms available to them to reduce these taxes such as a living annuity structure.
Living annuities can be used effectively to reduce one’s estate duty liability because the proceeds do not form part of one’s deceased estate, meaning that they are not included for the purposes of calculating estate duty or executor’s fees. Unlike life annuities which terminate on the death of the policyholder, when the owner of a life annuity dies, the remaining funds will be distributed to the nominated beneficiaries. Where an annuitant nominates beneficiaries to her living annuity, those beneficiaries have the option of transferring the living annuity into their own name or taking it as a lump sum.
Documenting and communicating one’s estate planning and end-of-life wishes with a trusted family member, friend or advisor is important to ensure that those closest to you know and respect your wishes. Once you have drafted your Will, ensure that someone close to you is (a) aware of its existence and (b) knows where an original copy of the document is located. In many instances, the estate administration process is delayed because those close to the deceased do not know if a Will exists or where it can be found. Remember, dying without a valid Will means that your estate will be distributed according to the laws of intestate succession. For instance, if you do not have a spouse or dependants, any surviving parents of yours will inherit through intestate succession. On the other hand, if you do not have surviving parents, your siblings will stand to inherit from your intestate estate – and in the event that your siblings have predeceased you, their descendants stand to inherit from your estate, and so on. It is therefore essential to intentionally structure your Will to ensure that the assets in your estate are distributed according to your wishes.
If you’re facing retirement alone, partnering with a trusted financial advisor will no doubt be top of mind to ensure that you have someone with the necessary financial and estate planning skills you can lean on to help navigate your retirement years.
Have a great day.