Estate planning different for singles, couples

(biz journals)  -- Retirement planning for single people and married couples often starts with a similar process, yet both present opportunities and challenges unique to each situation, according to metro area financial planners.

One of the biggest differences is how a couple’s work issues play into their financial profile, said Malik S.Lee, founder and managing principal for Felton & Peel Wealth Management. That’s when there are varying factors that are not considerations for those who are single.

“If both spouses are working, that is double the [salaries]. But a spouse that stays at home has its own issues, such as spousal payments with Social Security and ensuring that they will continue to receive income even after the breadwinner as passed [away],” Lee said.

“Furthermore, where the big difference comes in is making sure that the married couple is working in financial harmony. We want to look at things like maximizing Social Security and Pension Annuity Options, reviewing account beneficiaries that will pass outside of probate [such as] 401(k)s and IRAs, and health care benefits, to see which spouse’s plan would be more ideal to take into retirement.”

With the many factors that go into determining where a spouse’s income stream goes when he or she dies, planning for a single person’s retirement is less complicated, said Larren Odom, wealth manager for Chastain Wealth.

“When the single person, dies the need for retirement spending stops, but no so for couples,” Odom said.

“I have a client whose spouse was the primary breadwinner and had a pension that was a large part of the couple’s retirement income. In this case, the pension goes away completely when he dies, so we have to plan for how she will maintain the same retirement without that cash flow.”

Single retirees must plan more in the event that they become incapacitated and need long-term care, Odom said, sharing the story of a client who was single and had a degenerative condition.

“We put together a trust that would trigger when a committee of his doctors and friends declared he could no longer take care of himself,” Odom said.

“At that point, the trustee would take over the handling of his retirement funds and pay for everything he would need. This is somewhat unusual, but anyone who is single needs to plan for what happens if they have a long-term care event and can no longer perform the activities of daily living.”

Odom said a single person planning retirement should create a plan to address their circumstances and preferences. For example, is the single person surrounded by friends and family or geographically isolated? Does the person have the means to pay the cost of an extended-care facility? “

“The answers are all different for different individuals,” Odom said. “You need to talk this through with an expert to plan for the worst and hope for the best.”

Another area singles often do not plan for is the possible need for disability insurance, he said.

“For a single person in their 30s and 40s, generally their biggest asset is their future earnings,” Odom explained. “Multiply your salary by 15, 20, 25 years. If you get injured and don’t have enough disability insurance, that is the amount of money you are giving up by not being properly insured.”

Couples and singles alike need to keep in mind that all retirement planning is cash-flow projection, according to Terri Munro, partner with BT Wealth Management and president of the Financial Planning Association of Georgia.

“A professional can evaluate your savings, spending, assets and liabilities, and develop scenarios to help clients adjust their behavior well in advance of retirement, increasing the likelihood of success,” she said. “For both married couples and those who are single, reviewing beneficiaries on company retirement plans such as 401(k)s and pensions, and life insurance policies is key. These designations supersede the will, so if forgotten, significant assets can be misdirected due to outdated information.”

That’s why Munro said she recommends reviewing beneficiaries annually. “During open enrollment for company benefits is a good reminder if you’re working,” she said. “If you’re already retired, use your tax filing deadline as an annual reminder to check that your assets will go to those you intend.”

Also, every three years, Munro said, review your estate documents — wills, trusts and powers of attorney — to make sure they’re up to date with your wishes.

If a couple is not legally married but in a partnership, the partners can plan with their advisors and attorneys to provide for each other through estate documents and beneficiary designations, Munro said. However, there are some disadvantages, she added.

“The estate tax threshold is lower, there is no entitlement to Social Security spousal benefits, and other tax benefits are lower, such as the exclusion on gains on the sale of a primary residence.”

For this reason, blended estate planning is very important, Lee said.

“In this case, consulting with an estate planning attorney to help you navigate the landscape of trusts can be invaluable,” he said. “Some of the biggest estate planning blow-ups that I have seen were with single individuals and remarried couples with blended families with inadequate estate plans.”

Retirement advice for singles and couples

Three areas singles must consider:

  1. Estate Planning: “Most single people feel that they don’t have to do much since they don’t have a spouse or kids. If you have any assets, people will fight over them if you let them.”   
  2. Long-Term Care: “Addressing this concern will both protect your assets and ensure that you can receive the proper care should you need it.” 
  3. Overspending: “Overspending or unplanned withdrawals can lead to selling stocks in a down market and possibly running out of money prematurely.”

Three areas for consideration by couples: 

  1. Pension and Social Security options
  2. RMDs
  3. Financial harmony: “One of the most important things a married couple can do is use each other’s financial strengths. A perfect retirement plan is when you can get each spouses’ strengths in lockstep.” 

Source: Malik S. Lee, founder and managing principal, Felton & Peel Wealth Management


More Articles