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Single in retirement? How it can hurt your bottom line

Single senior in retirement.

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It's hard to miss the Registered Retirement Savings Plan (RRSP) advertisements that spring up at this time of year showing lithe and healthy seniors experiencing the good life. Think a silver-haired couple at the helm of a sailboat living the retirement dream.

Now, the reality. If you're over the age of 65 in Canada, there's a reasonably good chance you'll be sailing that ship alone.

According to 2014 numbers from Statistics Canada's key socioeconomic database, 628,816 men and 1,600,643 women between 65 and 95 were either separated, divorced, widowed or had always been single. (To account for the difference, men are more likely to remarry and women tend to outlive men.)

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But there's a number in particular that sticks out for Fred Vettese, chief actuary of Morneau Shepell in Toronto: 788,000. That's how many women between 75 and 95 who were widows as of last year.

"That's a pretty significant number," says Mr. Vettese, co-author of book, The Real Retirement. "How many of them will be disadvantaged or living in poverty because the death of their husbands caused them to lose some of the income they had before?"

That's a fair question, and for a portion of the population, the answer can have a devastating impact on the household bottom line.

Consider a retired couple that rents their home and has no other assets. Now assume the husband draws the maximum government benefits including his Canadian Pension Plan (CPP), Old Age Security (OAS) and Guaranteed Income Supplement (GIS). Mr. Vettese calculates the couple's annual income would be approximately $35,000. That's about $10,000 higher than the poverty line in a large Canadian urban centre like Toronto or Vancouver. Not bad.

But if the husband dies, his OAS money disappears, GIS payments fall and the widow's CPP survivor benefit rings in at only 60 per cent of her husband's total. The widow's annual income? It drops to $19,800.

"She's about a thousand bucks below the low income cutoff (for a single person in a major city). That's about the worst case scenario you can get," he says.

Even those with a written financial plan and extra assets don't always consider how events such as a death of a spouse or divorce will have a financial impact on them. In one recent BMO Wealth Institute study, close to 60 per cent of people polled admitted to be financially unprepared for major life changes including a spouse's death and divorce.

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What's more, a 2013 Investors Group survey revealed 62 per cent of grey divorcees – those who divorce at 50 or later – said their after-splitsville investments and savings would no longer be enough to retire on. Eighty per cent planned to delay leaving the work force.

It's possible they ran the numbers and didn't like what they saw. For starters, living single is not as simple as splitting a couple's living expenses in two.

"It would be nice to think that one person needs half of what two need, but if you're running a house, you still have that full expense. It puts more on the single person to come up with more money," says Jennifer Black, a certified financial planner and investment manager for Dedicated Financial Solutions in Mississauga, Ont., and author of Managing Alone.

Many advisers tell single clients they need about 70 per cent of an average middle-class couple's income to live a middle-class life solo. Single people pay roughly the same as couples for rent, mortgages, property tax, home repairs, vehicles, a phone, cable, vehicles and hydro.

They can't economize and share expenses as couples do, not even on more frivolous things.

Take travel – something that's on many a retirement nice-to-have bucket list. A four-night Royal Caribbean cruise to the Bahamas in a superior ocean view stateroom this April will set a 55-plus couple back $1,195. Yet a single senior traveller pays nearly as much as the two combined: $1,084.

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Time to find a roommate and split the cost.

Maybe that's not a bad idea. There are numerous ways to save money as a singleton in their golden years. Living with a friend or family member works for some, although longtime singles might find that loss of freedom disquieting and opt for renting out a basement apartment instead.

But before anybody gets to that point, a good plan, which outlines where retirement income comes from after a divorce or a spouse's death, is vital. So is looking at any company pensions a couple holds, says Tony Maiorino, vice-president and head of RBC Wealth Management Services in Toronto. Most pensions stipulate that the money can roll over to a beneficiary if the employee dies. In exchange, the payout is released as a lower monthly amount.

"That needs to be part of a planning conversation," he says.

Ms. Black says she has seen what happens when couples decide to roll the dice and take the higher payout instead, because they want to travel now or they assume the pension owner will outlive the husband or wife.

"People often say, 'Oh, I'd rather take more money up front.' But what happens to the surviving spouse? All of a sudden they're required to come up with a lot of income that is now lost," she explains.

RRSPs could be the secret weapon for someone entering retirement already single, advises Mr. Vettese. While he estimates that only about 1 per cent of Canadians do it, one way to create more retirement income is to live off RRSP savings between 65 and 70 – and hold off on drawing government benefits until the big 7-0. Do it and the annual CPP payout is 42 per cent higher for life, while the OAS payout is 36 per cent higher, Mr. Vettese says.

It's a good solution for single retirees since they don't have to worry about providing for spouses after they die.

"It's a solid source of income," he says of this little-used plan. "Even if you live until you're 104, you'll keep on getting your money."

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