Retirement Planning for One-Income Households

If you're raising a family or managing a household on one income, you're part of a significant group of Americans that often feels overlooked in financial planning conversations. While dual-income strategies dominate retirement advice, the reality is that millions of American families operate on a single income, whether by choice or circumstance.

The good news? You're not starting from a disadvantage. You simply need different strategies. This guide addresses the unique retirement planning challenges you face and provides actionable solutions designed specifically for one-income households.

Let's acknowledge what makes retirement planning different for single-income families. First, you have one employer-sponsored retirement plan instead of two. That means one 401(k), one employer match opportunity, and one set of investment options. Second, the non-working spouse typically has no W-2 income, which traditionally limits certain retirement account contributions. Third, you're building your future on one income stream while managing current household expenses.

However, these challenges come with some advantages that dual-income households don't always enjoy. You may have more flexibility in tax planning, better opportunities for household financial management, and potentially lower childcare costs that can redirect toward retirement savings. The key is maximizing the benefits available specifically to your situation.

Your single 401(k) becomes doubly important in a one-income household. For 2024, you can contribute up to $23,000 annually ($30,500 if you're 50 or older). This should be your foundation.

Start by contributing at least enough to capture your full employer match. This is free money that provides an immediate return on investment. If your employer offers a 50% match on 6% of salary, that's essentially a 50% return before any investment growth.

Beyond the match, aim to increase contributions by 1-2% annually during raises or bonuses. Since you're working with one income, every percentage point matters more. Consider this: if you earn $80,000 and contribute 15% to your 401(k), that's $12,000 annually. Over 20 years with a 7% average return, that becomes approximately $520,000. The same contribution rate on two $40,000 incomes would yield identical results, but you have the advantage of simplicity and unified strategy.

Don't overlook the Roth 401(k) option if your employer offers it. For one-income families, Roth contributions can be particularly valuable. If your household is currently in a lower tax bracket due to single-income status, paying taxes now through Roth contributions means tax-free withdrawals in retirement.

Here's where one-income households have a powerful tool that many don't know about: the spousal IRA. This allows a non-working spouse to contribute to an IRA based on the working spouse's income.

For 2024, your stay-at-home spouse can contribute up to $7,000 to an IRA ($8,000 if age 50+), even with zero personal earned income. The only requirement is that your combined earned income exceeds your total IRA contributions. If you're the sole earner making $75,000, both you and your spouse can each contribute to IRAs, effectively giving your household $14,000 in IRA contribution space.

You'll need to decide between traditional and Roth IRAs. Traditional IRAs offer tax deductions now but taxable withdrawals later. Roth IRAs provide no immediate deduction but tax-free retirement withdrawals. For many one-income families in moderate tax brackets, the Roth spousal IRA is especially attractive because you're paying taxes at potentially lower rates now for tax-free income later.

The spousal IRA strategy essentially gives you two retirement accounts growing simultaneously, helping offset the lack of a second 401(k). Over 30 years, maximum annual Roth IRA contributions for a non-working spouse could grow to over $600,000 (assuming 7% average returns), providing substantial retirement security.

Social Security provides critical protection for one-income households through spousal benefits. If your spouse never worked or had minimal earnings, they can still receive up to 50% of your full retirement benefit when you both reach full retirement age (currently 66-67, depending on birth year).

Here's how it works: Let's say your full retirement age benefit is $2,500 monthly. Your non-working spouse could receive up to $1,250 monthly, giving your household $3,750 in combined Social Security income. This spousal benefit doesn't reduce your payment at all.

Important considerations for spousal benefits include timing. Your spouse can claim as early as age 62, but benefits are permanently reduced (to as low as 32.5% of your full benefit instead of 50%). The working spouse must have already filed for their own benefits before the spouse can claim spousal benefits. And if your non-working spouse has any work history, Social Security will pay whichever is higher: their own benefit or the spousal benefit.

For one-income households, this structure provides meaningful retirement income security. A couple where one spouse earned $60,000 annually throughout their career might receive combined Social Security benefits of $3,000-$4,000 monthly, forming a solid foundation for retirement income.

Healthcare represents one of the biggest retirement expenses, and one-income households need careful planning here. If you retire before 65, you'll need coverage until Medicare eligibility. COBRA from your employer typically lasts 18 months but can be expensive. Affordable Care Act marketplace plans may offer better value, especially if your retirement income qualifies you for subsidies.

Both spouses become eligible for Medicare at 65, regardless of work history. Your non-working spouse qualifies for premium-free Part A (hospital coverage) based on your work record. They'll pay standard Part B (medical coverage) premiums, same as everyone else.

Consider Health Savings Accounts (HSAs) if you have a high-deductible health plan. For 2024, families can contribute $8,300 ($9,300 if 55+). HSAs offer a triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses. After 65, you can withdraw HSA funds for any purpose (taxed as regular income), making it function like an additional IRA.

A comprehensive retirement strategy for one-income households should include these components working together. First, maximize the working spouse's 401(k), at minimum capturing the full employer match and ideally contributing 15-20% of income. Second, fund spousal IRAs for both spouses annually, prioritizing Roth contributions if you're in the 12% or 22% tax bracket. Third, build an emergency fund of 6-12 months expenses (one-income households need larger safety nets). Fourth, pay down high-interest debt aggressively, as debt payments compete directly with retirement savings.

Consider your retirement timeline carefully. If the working spouse plans to retire at 62 but won't have employer health insurance, factor in 3 years of private health insurance costs before Medicare. Review your Social Security statements together and use the SSA's online calculators to project combined benefits under different claiming scenarios.

Asset allocation matters significantly when you have one income stream. You may want to be slightly more conservative than aggressive dual-income households, especially as you approach retirement. A balanced portfolio might be 60% stocks/40% bonds in your 50s, gradually shifting to 50/50 or 40/60 as you near retirement.

Don't forget estate planning considerations unique to one-income households. Life insurance on the working spouse is critical to protect the non-working spouse's financial security. Term life insurance can provide affordable coverage during working years. Update beneficiaries on all accounts, establish powers of attorney, and consider whether a will or trust makes sense for your situation.

Many one-income households make several preventable mistakes. The most common is assuming they can't save adequately for retirement on one income. While it requires discipline, the strategies outlined above make retirement security entirely achievable. Another mistake is neglecting the spousal IRA opportunity, leaving thousands of dollars in potential retirement savings on the table annually.

Some families over-prioritize children's college savings at the expense of retirement. Remember: your children can borrow for college, but you can't borrow for retirement. A balanced approach funding both is ideal, but retirement should take priority if you must choose.

Finally, don't underestimate the non-working spouse's future Social Security spousal benefits when calculating retirement income. These benefits, combined with your own, may cover a significant portion of basic retirement expenses.

Disclaimer: This article provides general information about retirement planning strategies. We are not certified financial planners, and this content should not be considered personalized financial advice. Everyone's financial situation is unique, and you should consult with a qualified financial advisor or planner before making any significant financial decisions regarding retirement planning, investment strategies, or account choices.