Retirement for Singles

While perusing the internet, I noticed a common pattern among financial blogs and advice columns: the majority of free online financial advice is geared towards couples. Statistics Canada recently reported that the number of single-income households is at an all-time high. With so many Canadians preparing to retire single, it is important to ask: how does financial and retirement planning differ for single retirees?

According to a recently conducted survey, 65% of Canadians over the age of 40 are currently single, divorced, separated, or widowed, and expect to be living alone after retirement. Out of this group, 47% reported having anxiety related to not having sufficient retirement savings to last them.  These anxieties can be rooted in the fear that the cost-of-living will increase, that a medical emergency may drain your savings, or that you simply will not have enough money to purchase the things you need, as you age. Whatever it may be, it is important to address this anxiety and identify the differences between couples and singles financial realities, so that we can develop an appropriate plan to help singles save for retirement.

Before we get started, however, it’s important to recognize the heterogeneity of this group that I have labelled ‘singles’. A single person could be divorced with children, divorced without children, never married with children, never married without children, recently widowed with children, or recently widowed without children. For the purpose of this article, I will be predominantly addressing the group of singles that have no children or significant dependents.

So, what are some things to consider as a single person approaching retirement?


General rule of thumb

Unfortunately, when planning for retirement as a single person, you can’t just take the expenses that a couple would have and divide them by two.

The general rule is that a single person needs to budget for approximately 70% of the combined spending of a couple in order to achieve a similar standard of living in retirement. This means singles have to save much more for retirement on a per-person basis than people in a couple do.
 
 
Start early

Certainly you have received this ‘start early’ advice from a financial professional before. It is one of those small pieces of advice that can truly make an enormous difference to your future financial position. The sooner you put away money in RRSPs, TFSAs, or other investment accounts, the more your assets will grow through the power of compound interest.
Further, not only does investing early provide you with a longer period of potential investment growth, but it can also help to reduce the effects of short term market volatility.

Ensure that you are also taking advantage of any pension matching program that your employer offers. The money that you contribute to your private pension plan is money that you would be saving or investing in another form anyways, so you might as well take advantage of your employer’s contributions. Guaranteed 100% return.
 

In case of emergency

When unexpected circumstances arise, couples are typically better financially equipped to deal with the consequences.
Without a partner’s income acting as a safety net in the case you suddenly lose your job, have a medical emergency, or your car breaks down, it is crucial that you put away extra money to act as your financial cushion. It is recommended that people with partners put away 3-6 months of their income into a rainy day fund. I suggest, however, that singles put 8-12 months of income into their emergency fund. This will provide you with the financial security necessary to weather the inevitable hardships of life.

Relatedly, if you have no dependents or significant beneficiaries to leave the proceeds of life insurance to when you die, consider getting disability insurance instead. Disability insurance ensures that in the event you are no longer able to work, you will still receive an income. In Canada, and depending on the insurance provider and plan you choose, you could receive 60-85% of your regular income, up to a maximum amount, in the case you are temporarily or permanently unable to work.
More general information on disability insurance is available here.

It is important to note that even if you don’t have life insurance, it is still critical to have a well-prepared Will and designated powers of attorney. This will ensure that your assets are distributed to the friends, family, and neighbors that you care for.
 

Adjust your lifestyle

Couples are fortunate not only because their family likely functions off of two incomes rather than one, but they can also share some of life’s biggest expenses such as houses, vehicles, and childcare. By finding ways to cut back on some of these large but necessary expenses, singles can free up some extra cash that can be redirected into your retirement savings plan.
One of these large, but necessary, expenses is a roof over your head. Particularly in regards to housing, it is important to remember that bigger isn’t always better. Consider downsizing your house to reduce your mortgage and property maintenance fees. If you have paid off your mortgage and therefore own your house, you can still consider selling your property and moving into a smaller home or renting. This will provide a windfall of cash that you can re-allocate to your retirement fund.

In regards to lifestyle expenses, a study from Psychology Today also reported that both single men and women consistently spend more on clothing and apparel, eating and drinking, health and personal care, and entertainment and social activities. Certainly, some of these heightened expenses are out of your control; for example, couples save money on groceries by purchasing larger quantities and experiencing economies of scale.

Being cognizant, however, of the increased expenses that are associated with singlehood, can allow you to seek out ways to cut back on some spending. For example, instead of going to a restaurant to socialize with friends, invite them over and cook a nice homemade meal instead.
 

Capitalize on opportunities to save

Now that it has been established that single women and men tend to spend more money than couples, let’s take a step back and look at some areas where singles can save.

Having no children is the secret goldmine of savings. Some singles do have to raise kids on their own, and in this case, it will put more stress on their financial situation. But for those of you that don’t have children, you have an incredible opportunity to save.

Between daycare, food, clothing, primary education costs, summer camps and other expenses, the average cost of raising a child to the age of 18 is $254,000, according to Statistics Canada. And that number doesn’t even include university tuition if you intend to cover that, as well.

If you don’t have a child, this means that you had the unique opportunity in your 30’s and 40’s to save and invest a substantial amount of money. Not only has your financial nest egg grown, but you are also earning more thanks to compound interest.  


Get your health in order

It is hugely important that single people develop a health plan that accounts for the absence of financial and personal support that a spouse can provide. This plan should include identifying your medical power of attorney and discussing your wishes and expectations with them in case they eventually have to act on your behalf.

Further, you should work on developing a strong personal support network of close friends, neighbors, and/or family members to assist you with the daily management of your personal health care needs. Such tasks may include picking up prescriptions or helping you get to your doctor’s appointments.
 

Tax considerations

There are many tax credits and rules that provide tax benefits to couples and families. As a single person, however, you need to be on the lookout for other tax breaks that may apply to you.

If you have kids: If you do have children, it is likely that by the time you are retiring, they are older than 18 years of age and thus, you are no longer able to claim the tax benefits associated with having dependents. In the case, however, that you still do have children under the age of 18, look around to see what tax deductions you are eligible for. Check out this CRA website for a detailed list.
 

Without the opportunity to split basic costs and the advantage that comes with having a dual income, singles tend to have to work longer, save harder, and live a more frugal life. However, creating a plan to build and sustain your wealth will leave you feeling financially independent and empowered.

Whether being single is an intentional choice or an unintentional result of divorce or widowhood, you have the opportunity to take total control of your finances without having to compromise or seek approval from anyone.