Single Woman and Retirement

By Angela Dorsey

Saving for retirement is an age-old task that you know you have to do, but you’re not quite sure about the logistics of how, when, and how much to save. It can be overwhelming and confusing to figure out if you have enough money socked away—especially as a single woman who might not fit into the typical example of how much to save for retirement. 

There are several “rules of thumb” that say you should save at least 15% of your income per year, have at least $1 million in investments, or enough to fund 80%–90% to fund your annual pre-retirement income. But which one is correct (if any)?

The answer, of course, is: it depends! 

At Dorsey Wealth Management, we know “it depends” isn’t a great answer for women seeking retirement security. That’s why we’ve put together this guide to help you narrow down how much you should save for retirement as a single woman. 

What’s Your Ideal Retirement Date?

Your age (now and in retirement) is one of the most significant factors to consider when determining how much money you need to save. If you want to retire early, you’ll have fewer years to save for a longer retirement. And if you start claiming Social Security benefits before full retirement age, you’ll also have to factor in a smaller monthly benefit amount.

The state of the stock market can also play a role in how much money you need and how long your money lasts. A Vanguard study found that you have a 31% higher chance of running out of money if you retire near or during a bear market. Of course, you have no way of knowing if we’ll be in a bear or bull market when you retire—but this is a scenario you must account for in your retirement planning. 

What Do You Want Your Retirement Life to Look Like?

Have you thought about the type of lifestyle you want to have in retirement? If you know you want to travel, pursue a passion, or spend time with friends or family, you need to factor in what that looks like and how much it will cost.

For example, if you plan to travel, you’ll need to consider: 

• Will you be traveling within the United State or internationally?
• How often do you want to travel?
• How would you like to get there? (e.g., car, plane, or RV)
• Where would you like to stay? (e.g., 5-star hotel, Airbnb, with family members)
• Will you be traveling with your family or friends? Would you like to cover their expenses too?
• Will you maintain your primary residence? If so, who will watch your house and maintain it while you’re gone?

Whatever it is you want to do with your time, map out the details so you can have a clear picture of how much you’ll need to make it a reality. 

What Are Your Sources of Retirement Income?

Most women will have several sources of retirement income, including Social Security payments, employer-sponsored retirement accounts, annuities, and distributions from personal investment portfolios. Some will even continue to bring in a paycheck by working after they’ve officially retired. 

Regardless of whether you work or fully retire, it is crucial to evaluate all sources of income and assess your likely expenses. A great first step can be to track your pre-retirement expenses to get a sense of what you currently spend. After that, you can begin to add or remove costs that you know will change in retirement to give you an idea of your future annual expenses. Once your projected Social Security and/or pension payments are subtracted, you can work backward to determine how much you need to save to cover the rest.

Understanding roughly what you expect to bring in versus how much it will take to live the lifestyle you prefer is the first step in building a unique retirement plan.

What Kind of Healthcare Coverage Do You Expect to Have?

Right now, you most likely have health insurance through your employer. When you stop working, you’ll need to have a plan for healthcare coverage another way. You can get coverage through the healthcare marketplace or wait to qualify for Medicare starting at age 65. At that point, however, you may want additional coverage to pay for prescription drugs, dental care, eye exams, and other expenses. 

Many women fail to fully plan for expenses during the later stages of retirement, and medical care often tops the list. It’s estimated that retirees will use 15% of their income for health expenses, and the average retired woman could see healthcare expenses of approximately $165,000. Women are often so busy taking care of everyone else in their lives that they don’t plan ahead for themselves. Don’t let this be a planning oversight that prevents you from retiring comfortably!

Similarly, it’s important to consider your family’s health history when planning for retirement. If you know there is a history of family members living beyond 90, you’ll want to take extra care to make sure your retirement savings will last. On the other hand, if you know that your family has a history of chronic illnesses or long-term care needs, you’ll want to explore appropriate insurance options.

According to Genworth’s website, the median 2022 cost of a private room in the Torrance, CA area for long-term care is $11,607 a month. 

What Impact Will Rising Costs and Taxes Have on Your Retirement?

Not only do you need to plan for basic healthcare expenses, but you must also factor in the impact of rising costs. This is especially true for women, who on average live 8% longer than men. This means rising costs will have a bigger impact on your portfolio longevity.

We have seen historically high levels of inflation over the past year, which has driven the cost of everything up significantly. Though this level of inflation will not last forever, even a more conservative 3.8% increase each year can drastically affect your retirement income.

Not only that, but healthcare costs tend to rise faster than inflation and they can become a huge burden later in life if you’re not taking proactive steps to save today.

Single women should also consider the impact of taxes as they plan for future retirement withdrawals. Because different financial accounts are taxed at different rates, it’s important to structure your retirement withdrawals in a tax-efficient way. 

Traditional IRAs and Roth IRAs are taxed differently. Traditional IRAs and 401(k)s are taxed at the ordinary income tax rate when you withdraw. Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free. Funds in a taxable investment account are taxed at the capital gains tax rate, which is different from your ordinary income tax rate. Mutual funds and ETFs can have different tax implications too. 

By understanding the tax characteristics of your retirement income, you can plan ahead and avoid a hefty tax bill.

Will You Have Any Dependents?

Your kids may be grown and out of the house by the time you retire, but that doesn’t necessarily mean you’ll stop supporting them financially. Over 79% of parents said they still give financial support to their adult children (ages 18 to 34), according to a Merrill Lynch study, and the COVID-19 pandemic caused a boomerang effect, with 67% of adult children still living at home with their parents after returning home in need of financial help.

Beyond children, do you have aging parents, siblings, or friends who might turn to you for care in the future? Many Generation X women are finding themselves in the “sandwich” generation where they are helping their children navigate adulthood while also caring for their elderly parents. Though it may be difficult to think about, planning for these scenarios can help you understand how much you should save for retirement. 

Where Will You Live?

Lastly, no retirement planning exercise would be complete without considering housing. It will likely be your biggest expense in retirement next to healthcare especially if you live in Torrance, Redondo Beach, or the surrounding cities in the South Bay. Even if your home is paid off, you’ll have to think about property taxes, homeowners insurance, and ongoing maintenance and utility costs. Depending on your circumstances, it may make more sense to downsize to a smaller place that requires less upkeep. 

To save even more, you can think about relocating to an area that has an overall lower cost of living. For example, the cost of living in Orlando, FL, is only 3.3% higher than the national U.S. average, whereas the cost of living in Los Angeles, CA, is 76.2% higher than the U.S average. As you can see, where you live can make a huge impact on the overall cost of your retirement.

Do You Know How Much You Need for Retirement?

Retirement planning is highly individualized, and there is no one-size-fits-all answer. At Dorsey Wealth Management, we strive to provide women with the information they need to make the best financial decisions possible. If you are a single woman wondering if you have enough saved, or you’re ready to start planning for an empowered retirement, we would love to hear from you! Schedule a free introductory 30-minute phone call or reach us at (310) 370-7776 or angela@dorseywealth.com.

About Angela

Angela Dorsey is the founder and financial advisor at Dorsey Wealth Management, a fee-only financial planning firm based in Torrance, California, helping successful women and couples prepare for retirement. Angela earned a BS in computer science from Loyola Marymount University, an MBA from UCLA Anderson School of Management, and spent 20 years as a Senior Compensation Specialist in large corporations before becoming a Certified Financial Planner™ (CFP®) and a Registered Investment Advisor (RIA). That background gave her the tools to couple with her passion for empowering women to make the best financial decisions possible. Angela lives in Torrance, California, with her husband. She enjoys spending time at the beach or surrounded by nature. To learn more about Angela, connect with her on LinkedIn.