Marital Status and Retirement Preparation
Marital status has a big impact on how prepared an individual is for retirement, according to a working paper published by Michael Hurd and Susann Rohwedder of the RAND Corporation. The authors concluded that 71% of people aged 66 to 69 are adequately prepared for retirement. Married couples skewed the number upward, with 80% of couples prepared. Only 55% of single persons are adequately prepared, however. Education, gender and changes in both consumption and income also play a role.
The study defined a couple or individual as being adequately prepared if it seemed probable that they would have positive wealth at death, based on assumed consumption rates. Married women were the most prepared, slighting besting husbands. Even married high school dropouts were largely prepared (70%).
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Single women in the study’s lowest education group were the least prepared (29%). Not surprisingly, only 37% of all single persons with a financial planning horizon of just a few months are adequately prepared.
The authors acknowledged that changes in income and consumption rates impact whether a couple or individual is able to pass along positive wealth. They calculated that a 30% reduction in Social Security benefits would reduce the proportion of adequately prepared married persons by 7.8 percentage points. Preparedness for single persons would drop by as much as 10.7 percentage points. Higher-than-forecast spending would also lower preparedness rates, with the authors singling out health care as an area where this could happen.
Some of the findings are not surprising, such as the results based on education. The authors do not give a clear explanation of why single people are less likely to be prepared than married couples. The authors do point out, however, that a lack of forward-looking behavior leads to an elevated probability of outliving wealth. Thus, regardless of your marital status, it is important to follow a long-term financial plan.
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