Retirement planning for one

Whether it’s golfing, travelling, or gardening, when people pause to think about what their retirement will look like, chances are they envision themselves doing their favourite hobbies with a partner. The reality is a different picture: According to Statistics Canada, 43 per cent of Canadians 65 and older are single.

Of those, 30 per cent are widowed, 8 per cent are separated or divorced, and 5 per cent never married.

Whether it’s by chance or design, heading into retirement alone yields multiple financial considerations.

Plan for the best ... and the worst

“Every Canadian should have a retirement plan or should save for retirement but that becomes even more important for someone who is single, since they only have one income to retire on or one source of retirement funds,” says BMO Financial Group’s Chris Buttigieg, senior manager of wealth planning strategy. “The power of saving, and saving early, becomes even more important.”

And there’s good reason to be prepared for a solitary retirement.

The 2011 census shows an increasing number of older adults going through “grey divorce” and living alone, with approximately 4,000 Canadians aged 65 and over getting divorced every year. Older women in particular are more likely to live alone in old age. Women over 65 are almost twice as likely to live alone compared to men their age and are often more vulnerable financially than their male counterparts, according to Statistics Canada.

Once seniors slip into a low-income bracket, it’s hard to climb out, according to BMO’s recent Retirement for One report. It points to a 2007 Boston College study, which found that more than two-fifths of all retirees will have significantly less income at age 80 than they did at age 67, with the median decline in income being $16,000 for current retirees and projected to be $23,000 for today’s Boomers.

The decline is more severe for retirees who find themselves suddenly single, especially if the survivor was relying on income from his or her deceased spouse. Seventeen per cent of current retirees fall into this category.

Married adults who become divorced or widowed between the ages of 67 and 80 are projected to have the largest decrease in wealth and the largest increase in poverty, experiencing a decline in median income of as much as 37 per cent.

Over 71 per cent of Canadians aged 40 years and older who have suddenly become single through divorce, separation or death say they didn’t have a plan to deal with the situation and were negatively impacted, according to BMO.

Divorce vs. death

Dealing with finances following the death of a spouse involves proactive planning, Buttigieg explains, while navigating money because of a split involves more reactive planning.

“When you’re married, there’s proactive planning for what happens when you’re widowed: making sure you have wills and estate plans in place, having beneficiary designations; making sure you have appropriate life insurance, emergency funds; having the same thing for disability: insurance for long-term care and critical care.”

The death of a spouse may mean rejigging what types of insurance you carry. For instance, you may no longer need life insurance if you have no other dependents.

If you’re on your own in retirement and are only dependent on yourself, disability insurance becomes even more important too, to protect your standard of living and lifestyle in retirement.

Being separated or divorced later in life calls for what Buttigieg calls the “recalibrating” of finances.

“This is where it’s really important to have your own, individual financial plan, to reassess what your individual personal financial goals are,” he says.

A key part of a newly designed individual plan is the structure of investments. Possibly, as a married couple, one person was more aggressive and the other was more conservative when it came to investments. Now’s the time to do what’s right for you.

“As a single person, you take into account … your needs, your risk tolerance, and your time lines to make sure investments are invested according to your goals,” Buttigieg says.

Regardless of the reason behind a solo retirement, people need to pay attention to who’s named as their beneficiary on things like RRSPs and life insurance, a step that often gets overlooked.

Spending and budgeting become much more important

Managing your spending and having a budget are crucial for anyone regardless of their life stage, and it’s even more important for those going it alone in retirement. Singles don’t have the advantage of dual incomes or of sharing the basic costs of living in retirement, such as housing, groceries and transportation with a spouse.

“You may need to make adjustments to the new reality of a single income,” Buttigieg says. “With divorce, assets and investments and pensions are split. If one is going to have the home the other one takes the liquid investments, what other sources of income does the single spouse have? If they’re living in the home, what’s going to be funding their retirement? They may ask: Do I need to downsize my home? Do I need to do a reverse mortgage?”

Renting is another option for seniors who can’t afford to stay in their homes, particularly if their mortgages aren’t paid off. Alternatives to downsizing or renting are intergenerational housing (living with other family members) or cohousing (sharing a home with others in a similar situation).

Educate yourself

It seems that financial literacy is a huge issue facing older Canadians. It’s vital to investigate work pensions if applicable as well as government sources of income.

A recent Investors Group survey found that that seven in 10 Canadians aged 55 to 64 don’t know what to expect from CPP yet more than eight in 10 of this age group say they plan to use this as a source of retirement income, and more than one third anticipate this will be their primary source.

Sun Life Financial advisor Andrew Wilkin says that suddenly single seniors, no matter how old they are, shouldn’t be intimidated by the idea of financial planning.

“It’s never too late to plan, even if you’re 80 years old,” Wilkin says. “That’s why we carry spare tires in our vehicles not that we ever use one necessarily but in case we need it, want to be prepared.

Sound advice, especially if you're going it alone.