Retirement strategies for singles

Preparing for retirement can be challenging, but especially so for singles. People who live alone can find themselves in a tougher financial situation than those with partners for several reasons:

• Singles can find it harder to save during their working life, especially if they have brought up a family on their own.
• Women still earn on average around 10% less than men, which presents an extra hurdle for single women. Women are also more likely to work part time during their working lives.
• Many living costs in retirement are fixed, meaning they’re incurred regardless of how many people live in a home – for example, insurance, rates, internet charges, home maintenance and vehicle upkeep.
• People who become single after separation or divorce, especially late in life, are faced with rebuilding their assets before they can start saving for retirement.
• Making financial decisions on your own can be more stressful and, without someone to discuss things with, can lead to poor financial decisions. 

The most critical strategies for single people are:

Affordable housing

The cost of housing is a key determinant of financial wellbeing in retirement. NZ Superannuation was designed in an era when most people retired with a debt-free home. That is no longer the case for at least 30% (and growing) of retirees. Options for being in a debt-free home when funds are limited can include: 

• Purchasing an affordable home – possibly in a different geographic area - and renting it out to others while working. The home can be either sold at retirement to purchase in another area or used as a retirement home.
• Taking in boarders, flatmates or overseas students to help pay a mortgage.
• Moving into a social housing situation where some facilities such as kitchens and lounge areas are shared.
• Building a minor dwelling on a property owned by a family member. 

Careful budgeting

It goes without saying that careful budgeting to keep living costs to a minimum and to avoid taking on debt is essential. There are subsidies and benefits for people on low incomes, such as the rates rebates scheme, and accommodation supplements.

SuperGold card holders often forget the many discounts that are available from retailers. An increasing number of people are choosing to continue working full time or part time past the age of 65, which shortens the retirement period while at the same time increasing retirement savings.

Wise investment

People with limited financial means are more inclined to be conservative with their investments. However, leaving funds invested in bank deposits will only erode the purchasing power of money saved. While it is important to have some funds in the bank to cover emergency needs and short-term spending, a diversified portfolio is a more appropriate investment for funds to be spent in the medium to long term.

Single people with a small amount of savings are the people most in need of personalised advice to help them run down their investments over time at the right rate to reduce the risk of running out of money too early. Rules of thumb for working out how much to withdraw, or simply withdrawing when the need arises, are not optimal strategies for singles. Careful management is required.

Balancing assets

NZ Superannuation is not enough to live on and while it is great to have a debt-free home in retirement, there is a need to have liquid investments as well, to bridge the gap between NZ Super and living costs.

The aim should be to have a good balance between money tied up in a secure, comfortable place to live and money to supplement pension income. If savings are low, this balance can be achieved through home equity release, downsizing your home, or considering one of the housing options covered above.

Wealth protection

It’s not as easy for single people to build wealth so it needs to be protected. While still working, one of your biggest assets is your future income and being single increases your vulnerability in the event of a serious illness. Insurance can protect your income and provide a lump sum if you’re unable to work. If you’re not planning on remaining single, you could also be at risk of losing assets in the event of a relationship breakup. Good legal advice is essential to protect what you have.