Most planning considerations are the same whether they are for a single retiree or a couple that will live out their retirements together.
--Both must determine the amount of income that can be safely budgeted to reduce the risk of running out of savings throughout their future lifespans.
--Both singles and couples should strive to implement investment portfolios that will reflect their own desired objectives regarding risk tolerance, returns, and diversification.
--They will also be choosing investments from the same universe of available investment alternatives.
However, there are differences regarding the length of time to plan for as well as the number of different stages that will add additional complexity in calculating yearly cashflows along the way.
Planning Period:
Planning for two will often increase the period of time that must be considered, since joint life expectancies always exceed single life expectancies due to fact that there will be a survivor that will continue living with needs to satisfy. Because of the additional time that needs to be funded, “safe” savings withdrawal amounts will be lower for couples than for singles assuming that all other factors are equivalent.
--Singles usually estimate their retirement lifetimes based on calculations from a single life expectancy table.
--Couples should base their retirement lifetimes using figures based on calculations from a joint life expectancy table. Probability statistics show that couples always have a greater chance of living to any chosen age than a single person would have, because there are two lives, which also provides two chances to reach it as well as live beyond the single life expectancy age.
--During the planning period, there will be factual changes that have to be considered for the surviving retiree that are necessary when planning for couples. The changes can involve assumptions for any variables that will change such as living expenses, the survivor’s income benefits, any insurance proceeds, and any others that will change.
Retirement Stages:
For singles there is only one lifetime stage to plan for. For couples there are two. The first stage for couples covers the period of time when both individuals are alive. Then a second stage that must be considered separately occurs for the survivor until his or her subsequent death.
The main variables that will change in planning for each stage will be changes to available income and necessary expenditures. When creating planning projections, this will increase the complexity of the calculations for determining the capital required, future income and capital expenditures.
Income Planning Differences:
--Couples will usually have reduced incomes at the points in time when each individual retires.
--Couples will have different levels of incomes at different point in time when Social Security is claimed and when decisions are made whether to elect spousal retirement benefits versus one’s own retirement benefit and also whether to receive the social security death benefits available to a survivor.
--For singles, there are fewer potential changes to income. Usually it changes just at retirement and when Social Security and any other pension benefits are claimed.
Tax Planning Differences:
Whenever income levels change the level of tax rates and tax liability need to be considered when developing planning projections. For couples, the change to “single” tax filing status for the survivor will likely cause an increase in tax rates to occur.
Greg Tinaglia
Last Updated: 04/12/2018