Financial Pros/Cons of being Married/Single in Retirement

[Johanson]

Hypothetically, we have a couple very much in love and living together and they will continue to do so until the day one of them dies. Would it be better for them financially to be married or single? I realize that different lifetime income levels would factor in but lets assume they were always within 10-20% of each other's incomes. Where do they win and where do they lose for being married?

 

[Bamaman]

#1 would be income taxes are cheaper on married filing together.
Often, spouses will have income from a previous spouse that may be discontinued when they get married--as in alimony. Or other income sources may cease when they get married, and I've seen long term cohabitation in those circumstances.

My friend has a mother that lived with a boyfriend for 25 years, and she had a low income job. He died, and she was literally put out in the streets with little social security and no pension to live on. Now, the lady's wheel chair bound and my friend's going to have to move her into her house and provide 24 hour care. It's just not fair that the man she took care of left her with nothing. It's not uncommon, unfortunately. She has no funds to get into a nursing home.

 

[Souschef]

Here is our story: Both our spouses passed away in 2005. In 2006 we were both single and the income taxes killed me. My wife had no income other than her husband's SS and a small survivor's pension.
We married in late 2007, and since she was over 60 she did not lose his SS or her pension. Even combining all that, MFJ was a lots less expensive, taxwise.

 

[omni550]

I'm single, so am only guessing. Although it seems as though many financial things are more favorable for married folks

Would they be able to collect on each other's SS? (If either were married previously, they may get a better deal claiming on spouse #1 SS).

Would they be able to file taxes MFJ?

Aren't married (MFJ) folk's tax brackets higher, thus allowing them to take advantage of Roth conversions, etc.?

If either are pension-eligible, are they able to leave their pension (Or a %-age thereof) to the spouse, if married?

Are either of them getting employer-provided healthcare for which the other one would become eligible, if married?

omni

 

[calmloki]

Long term unmarried couple here. Pretty much everything we own is titled joint with right of survivorship, so no concern about a survivor being tossed to the curb. Paltry SS benefits, no pensions. I thought we had the better tax status, maybe I'm wrong. One itemizes and the other takes standard deduction. We adjust our incomes by having one or the other declare interest income from loans and try to make SS cutoffs work for us, but don't go crazy. Enough income comes in we can be sloppy.

 

[Johanson]

In my hypothetical, both people have earned about the same amount of money throughout their lives before they retired and I'm assuming they have about the same amount of savings.

 

[gerntz]

What's the marriage tax penalty then?

 

[2017ish]

Not so much "they," but are either of them over the estate tax exclusion limit? Their heirs may care.

 

[Johanson]

Not so much "they," but are either of them over the estate tax exclusion limit? Their heirs may care.

Good question. Will it matter if they are married or not?

 

[donheff]

I suspect the financials would vary enormously depending on the specifics. If DW was to die I doubt the tax implications would be my primary consideration in a decision to marry or not. My inclination would be to avoid marriage for a variety of reasons but if I got several years into living together I would at least look into the financial benefits of both approaches. If I ever chose marriage I would be very careful with prenups and trusts. The main advantage I could see would be leaving my Fed pension survivor annuity to a new significant other. Maybe I could sell it .

 

[Music Lover]

What's the marriage tax penalty then?

Is there one? I may be wrong, but as far as I know, there is no tax advantage to being single. In fact, they are penalized because couples and families enjoy some tax advantages that are unavailable to single people. Single people also can't designate a spousal equivalent for SS, but they contribute at the same rate as married people.

 

[2017ish]

Is there one? I may be wrong, but as far as I know, there is no tax advantage to being single. In fact, they are penalized because couples and families enjoy some tax advantages that are unavailable to single people. Single people also can't designate a spousal equivalent for SS, but they contribute at the same rate as married people.

Yes. For example, two individuals with relatively similar incomes are indeed tax penalized if they marry. On balance, the Code and other laws favor marrieds, but there are many exceptions. (We've been in this situation for a long time; tried to get DW to agree to a paper divorce in 1992, but she didn't want to go there.)

Middle son and his partner are in holding pattern (after starting relationship at 19) because they both are high wage earners. Tax hit would be noticeable. Eldest and his wife ran spreadsheets and found only a .2% penalty so they got married ....

 

[2017ish]

Quote:
Originally Posted by 2017ish View Post
Not so much "they," but are either of them over the estate tax exclusion limit? Their heirs may care.

Good question. Will it matter if they are married or not?

If one (but not both) is over the estate tax exclusion, marriage would enable them to set up an estate plan to use the portability provisions to exclude a bit more than 10,000,000, rather than a bit more than 5,000,000, from estate taxation. So it would matter, and could benefit the heirs.

If they are both over, they probably are already consulting with estate planning counsel.

 

[ER Eddie]

Married people get all kinds of financial breaks that singles don't. I don't have a list, but there are plenty; I read about them in a book called Singled Out.

However, single people get to make their own financial decisions. To me personally, that's more important than any financial advantages.

 

[Bigdawg]

My friend has a mother that lived with a boyfriend for 25 years, and she had a low income job. He died, and she was literally put out in the streets with little social security and no pension to live on. Now, the lady's wheel chair bound and my friend's going to have to move her into her house and provide 24 hour care. It's just not fair that the man she took care of left her with nothing. It's not uncommon, unfortunately. She has no funds to get into a nursing home.

She could go to court to prove "common law" marriage and get his SS.

 

[Z3Dreamer]

I am going to assume a second marriage. I am going to assume they have wills that leave everything to each other upon passing. I am going to assume there were kids in each 1st marriage. Second to pass always finds some way to hate/alienate kids from deceased spouses first marriage. Therefore, those kids get nothing from will of second to pass.

Yes, this can also happen with an unmarried couple, but married couples tend to mix those finances. In either case, this is a problem with small estates. Larger estates, not so much. And yes, this is a common set of assumptions.

Hence, one more situation where single (and separate finances) is better.

 

[Hyperborea]

There are probably some non-direct tax issues with staying single but joining your lives as a couple. I've heard about these from gay couples that I know though for them some of this is in the past since they can now marry. If you know a gay couple they might be the best source of getting this setup right.

There are difficulties when commingling your assets. One is gift tax issues if you buy property or other large items together but one of the parties puts up the money or more of it. If you want it to be equally owned then the one that put up more of the money has to gift to the other the remaining share. For example, buy a $200,000 house and one party pays for it all. They would then need to gift the other party $100,000 of house. That will take a number of years at $14,000 per year or you can use up some of your estate tax limit and do it all in one year.

You may run into issues of not being related and the hassles that can cause with financial issues, medical and hospitals, insurance, and a lot of other places. You might not be able to visit or see the person or deal with issues in their place. You can apparently set it up to work like marriage (but not completely) at some expense. Even then somebody on the front line can decide to ignore your setup causing you to have to spend more time and effort to deal with that rather than the issues at hand. Also, your setup may not have legal force in all states or countries.

 

[W2R]

Sharing money

Hypothetically, we have a couple very much in love and living together and they will continue to do so until the day one of them dies. Would it be better for them financially to be married or single? I realize that different lifetime income levels would factor in but lets assume they were always within 10-20% of each other's incomes. Where do they win and where do they lose for being married?

Honestly, I think this depends SO much on the individual couple and the financial aspects of their marriage agreement. Will they share money and expenses when married, but not when single? I think this what makes the biggest difference.

When I was married, we shared money with joint bank accounts and credit cards and so on. I guess most people do. My ex like to spend as much we had plus as much as we could borrow. So I'd buy things whenever there was money in the bank or on the credit card to be spent, because if I didn't it would be gone.

As a single person living next door to my SO, I do not share money with him or anyone. I spend a lot less because there is no urgency to spend the money before it is gone. I think that would be true if we lived together also, as long as we did not share our money and expenses, and each paid our share of expenses separately.

Not sharing money has the added benefit of eliminating a lot of discord. I really don't care what he spends his money on since it isn't my money.

 

[Amethyst]

Or vice versa. Everybody demonizes step-parents, but I've seen one case where the step-kids did the alienating while the first parent was still living; and were rewarded by being cut out of that parent's will. In that case, the stepkids all but demanded their parent get divorced because they didn't like the step-parent; on refusal, they cut off all relations with the couple, cut them for 30+ years, but apparently stalked both parties online to learn when one of them died...

Either way, your point is taken.

Second to pass always finds some way to hate/alienate kids from deceased spouses first marriage. Therefore, those kids get nothing from will of second to pass.

r.

 

[Johanson]

Married people get all kinds of financial breaks that singles don't. I don't have a list, but there are plenty; I read about them in a book called Singled Out.

However, single people get to make their own financial decisions. To me personally, that's more important than any financial advantages.

This is what I'm looking for...the exact breaks married or single people get. Looking at the differences in tax brackets alone, two single people making $90K per year each, pay a lot less in taxes than a married couple making $180K together. But, two single people making $35K each pay the same tax as a married couple making $70K together. I didn't factor in their standard deductions but I don't think that changes the rates.
2017 Tax Brackets | Tax Foundation

 

[ER Eddie]

This is what I'm looking for...the exact breaks married or single people get. Looking at the differences in tax brackets alone, two single people making $90K per year each, pay a lot less in taxes than a married couple making $180K together. But, two single people making $35K each pay the same tax as a married couple making $70K together. I didn't factor in their standard deductions but I don't think that changes the rates.
2017 Tax Brackets | Tax Foundation

Well, here are a couple articles on the subject, from the author I mentioned, Bella dePaulo:

8 Ways Singles Pay More on Tax Day -- And Every Other Day, Too | The Huffington Post

21 Ways Single People Are Taxed More Than Married People on Tax Day and Every Other Day | Single at Heart

 

[exnavynuke]

She could go to court to prove "common law" marriage and get his SS.

Common law marriage is no longer a thing in most states now from what I've heard.

 

[karen1972]

As indicated previously it depends on unique situations. The only real tax issues I have seen is the inheritance tax you could be hit with. If you are both equal then the tax benefits greatly diminish.

However, if your not equal, then there can be some great advantages, everything from being able to fund both you and your SOs ROTH from a single income, being able to take the other spouses SS, being able to combine income and average down your tax bracket.

Right now I'm not married. We have been together 7 years, bought a house w/ joint survivorship. First 5 years I was in a high tax bracket and he was in the 15% tax bracket, no reason to combine and make him pay more for every dollar he made. Now he makes more and I'm retired, but it would be even worse, as right now we are both in the 15% tax bracket, but combining we'd be pushed out and I'd lose my ACA subsidy and have to pay taxes on my dividends.

However, once he stops working (within the next 5 years), then we will likely get married as then we would be living on only my money until we hit 65...as then as a couple, we could convert more of my 401k into a ROTH (since his is almost all ROTH now) and be able to take more money out to live on without pushing out of the 15% tax bracket. It is also likely given his lower lifetime earnings, he will be taking my SS.

Last year I think I figured getting married would cost me $6K in taxes. Thats pretty expensive for a piece of paper and more than I'd have to pay in writing a health directive and such to give us the same legal rights as married people. However, I know once we are both early retired, then marriage is definetly to our benefit.

 

[ABQ2015]

This is what I'm looking for...the exact breaks married or single people get. Looking at the differences in tax brackets alone, two single people making $90K per year each, pay a lot less in taxes than a married couple making $180K together. But, two single people making $35K each pay the same tax as a married couple making $70K together. I didn't factor in their standard deductions but I don't think that changes the rates.
2017 Tax Brackets | Tax Foundation

Your question concerned financial pros/cons in retirement. Most married couples are not going to exceed $153K (threshold for 28% tax bracket) in retirement income that is fully taxable. Those with this level of resources are likely to have taxable investments or other tax friendly investments. Many of the posters have brought up good points on second marriages with children from first marriages.

If that is not the case, what I would consider pros of marriage besides the economics of scale in maintaining one household and the various discounts available to families would be pension and social security survivor benefits, IRA inheritance rules more favorable for spouses, being able to be involved in health decisions of your spouse and decisions upon their death, being on their employer health insurance if offered in retirement, etc. For example, a spouse can still get social security survivor benefits while allowing their social security to grow until age 70. Also, when my boyfriend of ten years died, I had no standing with the coroner or the funeral home and all these communications were with the out of state cousin. You travel quite a bit. Your spouse could share in the travel rewards programs.

 

[Johanson]

Well, here are a couple articles on the subject, from the author I mentioned, Bella dePaulo:

8 Ways Singles Pay More on Tax Day -- And Every Other Day, Too | The Huffington Post

21 Ways Single People Are Taxed More Than Married People on Tax Day and Every Other Day | Single at Heart

I think this is a poorly written article.

1. Social Security. I'll give her that a married couple can draw on one another's SS but I don't see that being a huge plus.

2. IRAs. "IRAs are better in some ways than Social Security with regard to treatment of single people, but there are still some special penalties aimed solely at single savers."

What might these special penalties be? Anyone?

3. Health. I average about $250/year on my health not counting the $150/month I pay for insurance. I'm not buying that. It might be more expensive for a woman though.

4. Housing. I'll give her that one. I could get a renter and rent part of my house but I prefer not to do that.

5. Income tax. I call BS on this from looking at the tax tables. Married couple rates are either the same or more than singles.

6. Paid less. Not me! There is one other person that does my job and he is married and I make more. In fact, my versatility is considered a huge benefit to my boss.

7. Discounts. This is negligible, in my opinion.

8. Wedding Gifts. LOL, I haven't been to a wedding in years and have probably given only 2 or 3 wedding gifts and 0 shower gifts in my lifetime. She needs to do better than this.