Going it alone in retirement

Whether single by choice or unexpectedly single, the solitary state poses its own set of retirement challenges and solutions – as well as an opportunity for financial advisors to help single clients of all walks of life plan for what could be a lengthy retirement. This is especially so, given that singles often must bear expenses that normally would be shared by two people. There’s no question there’s a “singles premium” for living alone.

“There are people who have been single for many years, and they are a defined group who tend to be independence-minded and self-reliant, and are used to running their own show,” says Clay Gillespie, managing director and financial advisor with Rogers Group Financial Advisors Ltd. in Vancouver. “The person who loses a spouse or is involved in a ‘grey divorce’ often needs to make some adjustments in their plans for retirement when they can no longer share expenses.”

According to a report from Toronto-based Bank of Montreal (BMO) entitled Retirement for One – By Chance or Design, 43% of Canadian adults aged 65 years or older are single. Digging deeper, the research found that 5% never married, 8% are separated or divorced, and 30% are widowed. The widowed group is dominated by women, who tend to live longer than men.

In Canada, recent numbers from Statistics Canada show that there are 19 million single adults, including those who are widowed, divorced and separated. This group is significantly bigger than the 15.1 million adults who are married or living in common-law relationships. More than 600,000 men and 1.6 million women between the ages of 65 and 95 are separated, divorced, widowed or have always been single. The average age of a woman becoming a widow in Canada is a surprisingly low 56, according to Census Canada’s data.

“There’s an upward shift in the percentage of people who are single; it’s part of a social trend we are seeing and we expect the numbers to go up,” says Amy D’Aprix, life transition expert in the retirement research division of BMO in Toronto. “Financially and lifestyle-wise, [this situation] needs to be managed and planned for.”

Two truly can live more economically than one, and you and your clients must start planning on the premise that a single person faces higher expenses than someone who is in a couple relationship.

And when a long-term marriage crumbles, dividing assets can alter retirement resources and plans sharply. Pensions, matrimonial homes, cottages and other wealth-related assets get sliced and diced and, as a result, your clients’ vision of retirement often must be downsized as well.

Rather than simply living on half of what a couple needs, the guideline for singles typically is 70%-75% of a couple’s joint budget. For example, if a couple needs $100,000 a year to live comfortably in retirement, a single person would need up to $75,000 to afford a comparable lifestyle.

Significant costs that cannot be shared by a solitary person include rent or mortgage payments, property taxes, home repairs, a motor vehicle and gas, telecommunications and home utilities. Without a spouse to help your single clients, they also may spend more on help for their own care, or on hiring assistance for chores such as yardwork, snow shovelling, shopping and housecleaning. Single clients who travel alone often will be charged a premium for hotel rooms, cruises and vacation tours.

Rubbing salt in the wound is the fact that singles are not in a position to benefit from any kind of income splitting to reduce taxes, which may increase their vulnerability to clawbacks of old-age security (OAS) benefits.

For example, Ted Rechtshaffen, president and CEO of TriDelta Financial Partners Inc. of Toronto, points out that a couple with a joint $140,000 income can redistribute the income to $70,000 each through income splitting, thereby qualifying for a maximum of roughly $7,000 each in OAS. A single person making $140,000 in retirement would not qualify for any OAS, as clawbacks begin to kick in around $72,000 in income.

The single person in this scenario thus would have $14,000 less in financial resources than the couple. Singles also are not eligible for any Canada Pension Plan survivor benefits that may stem from the death of a spouse.

On the other hand, childless singles are spared the considerable expenses involved in raising and educating children, paying for their weddings, subsidizing their house purchases and taking the children back into the family home if they can’t make ends meet as young adults.

Although single clients may have less need for life insurance to support dependent children, singles have more need for insurance benefits while they are alive – such as disability, critical illness and long-term care (LTC) insurance – because there is no spouse or children to help out.

These kinds of benefits can add to a single’s cost burden, and make budgeting for retirement savings even more difficult. But, but if accident or illness strikes, insurance policy benefits can provide an emergency lump sum or monthly payments to help offset the costs of home care, medical transportation or a stay in an LTC facility, according to the BMO report.

“Your value as an advisor must go beyond facts, figures and numbers, and help people plan for changes in health and lifestyle,” says Barry LaValley, founder of the Retirement Lifestyle Center Inc. in Nanaimo, B.C. “It’s important to have the conversations, to go through the fire drill, look at what might go wrong and prepare for it.”

LaValley adds that clients who start saving early or have sufficient savings may be able to “self-fund” their own long-term care costs, while for others, insurance could make more sense.

As part of this planning process, you can help your clients estimate the costs of their desired living arrangements in later years, as well as their ability to save for long-term care, LaValley says.

Younger clients will pay less for LTC insurance than those who wait until later in life. For others, their home may be viewed as an asset that could be sold later in life to finance a stay in an LTC facility.

Young singles are faced with the dual challenge of needing to save more than a married person for retirement, when it’s already costing singles more to live in solitary splendor as a pre-retiree.

Although everyone can benefit from starting to save early and contributing regularly to retirement savings plans, following this advice is even more crucial for singles. Appropriate allocation to equities-based assets also is important to achieve the growth and inflation protection that singles will need during the long life that many expect to have based on demographic trends.

“Single people are carrying all the load on their own backs,” says Rechtshaffen. “Living just for today and procrastinating on retirement planning is a greater risk for single people.”

According to BMO’s retirement report, even a modest inflation rate of 2% will double the cost of living (COL) every 36 years, 4% inflation will double the COL in 18 years, and 6% will double the COL in 12 years. Many expenses are rising at a greater rate than inflation and will affect the COL in retirement. For example, health-care costs have risen at an annual rate of more than 5% during the past decade.

Childless singles may be less concerned than their married counterparts about leaving an inheritance to heirs, which may give singles more leeway to dip into their capital during the course of retirement rather than preserve it for the next generation, Rechtshaffen says: “Spending their last dollar on their last day may be a legitimate goal for single people.”

However, with longevity increasing, that last day may be moving further into the future, and regularly monitoring a financial plan to be sure it’s on track is important, as is adjusting spending and saving accordingly.

Having a will and appointing executors and powers of attorney for health care and financial matters are important tasks for single people. In the past, people tended to have larger families, even if they didn’t have a spouse, to take care of deceased family members’ affairs.

These days, there are fewer siblings around, and they may live far away. In addition, with many clients living well into their 90s, even single clients with children may find their children have hit their 70s by the time the parent needs help. For singles, it’s crucial to think about how to protect themselves when they can’t manage their own affairs.

“I recommend two powers of attorney – one who’s kind and compassionate, and one who’s good with money,” says Diane McCurdy, president of McCurdy Financial Planning Inc. in Vancouver. “The client must ensure his or her wishes are absolutely clear. It’s important both to have the conversation and to put wishes in writing.”

Social contact is important to single seniors, as loneliness, boredom and inactivity can contribute to depression and declining health. Many seniors will pursue some kind of communal living arrangement, such as house-sharing, buying a condo or renting in a building in which friends also live or living in a retirement residence that offers social activities and health support. The type of accommodation desired should be investigated to ensure it can be accommodated by your client’s financial plan.

Singles without a defined-benefit pension plan to provide a secure safety net can benefit by having a portion of their income guaranteed by a fixed life annuity. McCurdy says one of the benefits of an annuity is that it does not have to be managed once it has been purchased and a predictable stream of income flows regularly to the retiree for life. There also is no access to the assets, providing protection from any greedy relatives or fraudsters.

“Some singles may have nobody to watch over them or their finances, and may be vulnerable to elder abuse if they are not thinking clearly,” says McCurdy. “It’s good to have a source of income that nobody else can touch.”

Gillespie says that annuities contribute to peace of mind due to the immunity of their income to market corrections, but he points out that the relationship between annuity cost and the level of guaranteed income is much more favourable for a client purchasing the annuity later in retirement, such as in their late 70s vs. their 50s or early 60s.

If your single clients do not have children, charitable giving may be a larger part of their estate planning. There is an opportunity for singles to direct a portion of their estate to a cause that they care about; but if there is no will, the proceeds of an estate may end up going to the next of kin.

Because singles have no spouse, the person who would be the default inheritor of a deceased spouse’s assets, your single client’s next of kin may be a distant relative.

“Instead of leaving an inheritance to nieces and nephews [clients] haven’t spoken to in 20 years, why not help clients choose a cause that they connect with emotionally and where they can make a difference,” says Lise Andreana, certified financial planner (CFP) and partner in Continuum 11 Inc., a financial planning firm based in Burlington, Ont.

Sterling Rempel, CFP and president of Future Values Estate & Financial Planning in Calgary, points out that singles do not benefit from some of the same benefits as couples regarding estate transfers upon death, including tax-free rollovers of RRSP and RRIF assets to spouses.

However, singles do benefit from tax breaks available when transferring assets to charities and should take advantage of the opportunity to “be generous and redirect social capital,” he adds. “There is often less of a call from family and a greater opportunity for singles to impact the world around them positively.”

© 2015 Investment Executive. All rights reserved.