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Being single – whether by choice or involuntarily – brings many unique opportunities and challenges for financial planning. Perhaps you imagine yourself living independently in retirement. Or, maybe you find yourself suddenly single due to divorce or bereavement. Regardless of the circumstances, single people should approach retirement planning with a clear idea of what to expect and which steps may be required to meet their goals.
Below, we offer a short guide to retirement planning for singles in 2024-25. We hope these insights are helpful to you. Please get in touch for more information or to discuss your own financial plan with us.
The challenge for single people
Let us start with some of the bad news. A single person is likely to need more retirement savings than couples, possibly as much as £200,000 or even more.
This is partly due to the tax system. For instance, two individuals in a couple, each earning £70,000, is more tax-efficient than a single person earning £140,000. This is because the former enjoys two tax-free Personal Allowances, whilst the latter enjoys only one.
Consequently, the couple keeps more of their gross income, leaving more to save for retirement. Moreover, a couple can combine their incomes to share the living costs. By contrast, the single person often pays rent, utilities and other expenses alone, making saving harder.
Another issue for single people is the prospect of care in later life. For couples, one partner might look after the other, for instance, if they develop dementia. This can reduce the likelihood of entering an expensive professional care service. By contrast, a single person may have fewer options to fall back on. As such, they may need to save for higher care costs.
A third issue is the State Pension. In a couple, two people may receive two incomes from their State Pensions built up over their careers. This reduces the need to save into workplace and/or private pensions. However, a single person will only receive one income, thus increasing the likelihood of needing to save more for retirement out of their own salary.
The importance of the State Pension
Single people largely start at a disadvantage to couples regarding retirement planning. However, much can be done to achieve a comfortable and sustainable lifestyle. In particular, maximising your State Pension can provide a great foundation for your future income.
In 2024-25, the full new State Pension provides £221.20 a week (about £11,502.40 per year). Your income largely depends on your National Insurance (NI) record. To get the £221.20 per week in 2024-25, you need at least 35 “qualifying years” on your NI record. You need a minimum of 10 years to receive any State Pension at all.
The State Pension is especially important for single people because it provides an indefinite income source, which rises yearly due to the “triple lock” system. A complete record will ease the pressure to save more in your pension scheme(s) to cover your retirement costs.
Unique aspects of single retirement planning
There can be certain financial “perks” to being single like the 25% single occupancy Council Tax discount and less need for certain protection policies (e.g. life insurance if you have no dependents). However, if you are a young single person, you have another advantage – time.
The more years you have ahead of you until retirement, the more your pension contributions (and other savings or investments) can benefit from compound interest. This “interest on interest” creates a snowball effect, dramatically boosting your returns, especially in decades three and four when building a retirement fund.
Couples can sometimes struggle to unite their financial goals and habits. Yet, as a single person, you have full control over your financial decisions. By starting a retirement plan early, many single people could “catch up” with their coupled peers.
Be aware that single people often lack the financial “safety net” of couples if they suddenly find themselves unable to work due to injury or ill health. This makes protection measures more important, such as income protection and/or critical illness cover.
Consider checking your employment benefits (e.g. sick pay and private medical insurance) to see whether your personal protection plan needs expanding or amending. Also, consider aiming to build 3-6 months’ worth of living costs in easy-access savings, ready for emergencies.
A note to women
Inequalities still exist between the sexes in 2024. In the retirement world, women tend to have lower pension savings than men due to the gender pay gap (making it harder to save towards retirement). This can make things especially challenging if a woman finds herself suddenly single, perhaps due to divorce or the death of her significant other.
Women generally live longer than men, creating additional pressure on retirement savings. Moreover, women tend to take more career breaks to undertake caregiving roles (e.g. raising children), which can result in lower pension contributions.
Due to these and other factors, women typically need different retirement plans than men. Additionally, single women often need different financial plans than married women. Contact us to discuss your retirement goals and situation if you fall into any of these categories.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you.
Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
