Vancouver single Deena Tokaryk, 46, sets aside money in her RRSP and TFSA but wonders if she’s doing enough to secure a successful retirement.Ben Nelms/The Globe and Mail
Deena Tokaryk hasn't been waiting around for Mr. Right to live life to the fullest.
The 46-year-old never-married public relations professional follows a simple philosophy when it comes to her hard-earned money: Live for today and save for tomorrow.
She bought her Vancouver home 10 years ago, which has appreciated nicely thanks to the city's red-hot housing market, and regularly sets aside money in a registered retirement savings plan (RRSP) and a tax-free savings account (TFSA).
Ms. Tokaryk also saves for one big vacation annually (she's been to Croatia, Ireland, Portugal and Peru in recent years) and for extras such as clothing and entertainment.
While Ms. Tokaryk may have more spending money than most couples who are earmarking a chunk of their paycheques to support children, she must pay for her mortgage, taxes, phone and cable with one income. She worries about saving enough to support herself when she decides to quit the working world.
"That is the single biggest challenge being a single person. I don't have anybody else to rely on. It's just me," says Ms. Tokaryk, who doesn't have a company pension. "That's a pressure that I think about for the long-term: What will my retirement look like?"
Ms. Tokaryk is one of a growing number of Canadians saving for retirement on their own, including people who are divorced and widowed. Statistics Canada says that, for the first time in history, there were more single-person households in Canada in 2011 – about 28 per cent – versus couple households with children, at about 26.5 per cent.
Retirement strategies for singles
Financial experts have different strategies for single people in planning for retirement.
To help keep taxes down, Diane Dekanic, president and owner of Calgary-based Financial Health Management Inc., often recommends single people stop contributing to RRSPs after a certain age, depending on how much they've set aside. That's because the money withdrawn in retirement is taxed as income, which is at the highest tax rate.
Instead, Ms. Dekanic advises clients to have sufficient funds in non-registered accounts with capital gains that are taxed at a lower rate. TFSAs are great because the investments in them aren't taxed at all.
"For a single person, having money that is non-registered, and not overstuffing the RRSP, is really critical," she says, because it allows more flexibility when it comes time to withdraw income.
Annual required withdrawl rates from a registered retirement income fund (RRIF) increase each year (from 4 per cent at 65 to 20 per cent for those 90 or older). If your RRIF is valued at $1-million at 72 – the year you have to start taking money out – the minimum annual payout will be $54,000 (5.4 per cent of the value of the plan at the beginning of the year). That, combined with the Canadian Pension Plan and Old Age Security benefits, can put you in a higher tax bracket.
Ms. Dekanic's rough rule of thumb – which she acknowledges can be controversial in the financial products industry – is that if you're 40 with about $200,000 to $250,000 in an RRSP (and have no other non-registered investments) and plan to retire at age 60, future RRSP contributions aren't as tax efficient, so you should focus on a TFSA.
"Having a TFSA and a non-registered portfolio will allow you to retire more comfortably," Ms. Dekanic says. "We're not telling people to stop saving. It's more about: 'What pocket do you put it in?' "
Single people can't take advantage of income-splitting, which allows people to transfer income to lower-paid spouses to reduce income-tax payments. Even if the Liberal government axes the tax perk for the wealthy, as promised in its election campaign, Ms. Dekanic says many couples still have an advantage because they have more choice in their shared retirement portfolios as to where to pull income from in order to minimize taxes.
Plan for yourself
The smartest move single people can make is not assuming they'll eventually marry rich or even partner up with someone who can share the expenses, says Simon Tanner, principal adviser at Vancouver-based Dynamic Planning Partners.
"So often people say, 'Maybe I'll be in a relationship.' Maybe you will," Mr. Tanner says. "Maybe you'll win the lottery, too, but we don't plan for it. Plan for yourself."
The amount of money an individual will need in retirement is usually about 60 to 80 per cent of pre-retirement income, Mr. Tanner says.
Mr. Tanner also stresses risk-management planning for singles, including making sure they have adequate disability and critical illness insurance in their working years leading up to retirement.
"In my experience, people without a working partner are much more susceptible to having retirement plans derailed by a premature disability or having to use savings in the event of a life-altering critical illness," Mr. Tanner says.
"While risk-management planning needs to be part of every retirement plan, singles don't have the benefit of additional spousal income streams to keep households running."
A good mix of RRSPs, pensions (where applicable), TFSAs and non-registered investments are key for single people since "that is their only way of creating tax-efficient income-stream options in retirement," Mr. Tanner says.
"Tax planning is important for all retirement and investment plans, but for singles it needs to be thought of a little earlier and a little more often."