Financial Realities for Unattached Canadians: Strategies for a Secure Future
The Income and Wealth Gap
The Context
An unattached Canadian is a person not in an “economic family,” that is, a person living either alone or with others to whom he or she is unrelated, such as roommates or a lodger. Unattached Canadians are a growing demographic in Canada. Many are thriving, yet data reveals they face unique financial vulnerabilities.
For example, 2024 median total income for unattached Canadians is $44,900 versus median total income for economic families of $122,000 (figures from 2022 adjusted by the rate of inflation). If we were to assume that unattached Canadians simply earned half of economic families because we are dealing with only one working adult versus potentially two working adults in a family, we might think that the median for unattached Canadians should either rise to $61,000 (half of the economic family’s figure) or the total income for economic families should drop to $89,800.
Median wealth figures also differ substantially. In a study of those aged 50 or older, unattached men had wealth of $243,900 while unattached women had significantly more wealth at $332,800 (figures from 2016 adjusted by the rate of inflation).
These figures compare unfavourably to the situation of couples aged 50 or older where median wealth in 2024 amounted to $1,002,500 where the major income earner was a man and $1,196,800 where the major income earner was a woman (figures from 2016 adjusted by the rate of inflation).
What is the “upshot” of this data? Unattached individuals are statistically more likely to experience poverty.
The Reality Check
A single person with the modest median wealth described above likely needs to stretch these resources further than a couple would. This gap poses financial risks in covering retirement, healthcare expenses not covered by government programs, and other unexpected expenses.
Examining the Challenges for Unattached Individuals
Financial Vulnerability and Limited Safety Nets
Being unattached means you do not have access to any shared financial resources, pooled wealth, or sharing of household costs that couples enjoy. For example, couples can combine income from jobs or pensions in retirement. If they want to buy a home, a couple has potentially twice the savings power as an unattached individual. While RRSPs/RRIFs and TFSAs are owned by individuals, if you have a spouse or common-law partner, you can name your partner as a successor annuitant to RRSPs/RRIFs and as a successor holder to TFSAs. Both provide advantages that will add to the financial support of the survivor; this is simply not the situation with an unattached individual.
Another factor to consider is insurance. While you as an unattached individual may see no value in life insurance, since no one is dependent on you, other forms of insurance are even more necessary since you have no one to depend on. Two that come to mind are disability insurance and critical illness insurance.
The following table provides an annualized estimate of comparative spending on essentials (non-discretionary spending), based on data from Statistics Canada.
These estimates suggest that an unattached adult spends approximately five-eighths (62.5%) of what a couple with no children would. While the numbers will vary in real life (note that these estimates are based on 2021 data), the point is that two can live more cheaply than one.
Government transfers (estimated at $3,400 in 2024) help single persons but often don’t fill the income gap. Consider as well that upon reaching age 65 or earlier in some cases, retired couples can split pensions, Canada Pension Plan payments (within limits), and RRIFs to equalize their taxable income. Unattached persons face the same tax regime and many of the same essential expenses as two-income households without the opportunities that are afforded couples. This inevitably reduces savings or investment opportunities for the unattached.
Higher Risk of Poverty in Retirement
These diminished opportunities to accumulate wealth inevitably lead to an increase in the risk of poverty, especially for those aged 50 and older, compared to couples with the combined income sources and benefits that couples often have. According to Statistics Canada, in 2022, “over one-quarter (26.0%) of unattached individuals were below the poverty line, …nearly four times the 2022 poverty rate for people in families (6.6%).”
Shifting Perspective with Personal Financial Planning Strategies
The Power of a Tailored Financial Plan
Based on the information above, the first step in a financial planning strategy should probably be to get married. While it is true that marriage or common-law partnership has significant potential to improve one’s financial standing, there are steps that unattached individuals can take to improve their financial standing. These steps are founded on effective management of your finances, specifically, spending less than you are bringing in so that you can save aggressively, and minimizing debt, especially high-interest debt from credit cards, unsecured lines of credit, or unsecured personal loans. Someone with a high credit score might be able to get an unsecured line of credit for 2% above a bank’s prime rate (5.95% as of today, November 4, 2024) but credit cards are typically around 20%.
Financial Planning Strategies for Single Canadians
Suggestions for Building Wealth and Income Security
Prioritize an Emergency Fund
This is not “rocket surgery.” One of the reasons people go into debt is because they do not have the financial resources to pay for a necessary expense. I’m calling this an “emergency fund,” but in truth, I think it can be expanded to cover regular expenses as well, and maybe especially so in the case of unattached persons. These days with online bank accounts and e-transfers, you can dedicate a specific account for bill payments and make sure to transfer a sufficient amount with each paycheque to cover your monthly expenses. Some costs are more periodic. For example, my wife and I pay for our home and auto insurance once a year. Another expense is charged quarterly. These expenses could be funded over a year or every three months (quarterly). Eventually, you want to build up this fund so that you have at least three months of expenses covered. In fact, without a spouse or partner to lean on financially, irrespective of whether you own a home, you would probably be wise to set aside six months of spending or more.
Boost Savings with RRSPs and TFSAs
Irrespective of household status, I generally encourage maximizing registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs). The benefits of tax-sheltered growth, tax deductions (RRSPs), and tax-free withdrawals (TFSAs) are not to be diminished.
I have heard some people refer to “buying RRSPs” or “buying TFSAs.” This misunderstands the nature of these account types and the range of options available to account holders. I don’t have firm evidence of this, but I suspect that this sort of language indicates that the person in question is not aware of anything beyond savings accounts or possibly Guaranteed Investment Certificates (GICs).
An unattached person needs to make a concerted effort to build wealth for retirement and this is unlikely to be adequately accomplished with cash or cash-equivalent savings. Instead, most will need to regularly put money into a long-term globally diversified investment portfolio that they are planning to start drawing on from approximately age 65 or so. While the perception is that an investment portfolio with substantial holdings in stocks (equity) and bonds (fixed income) is risky, the probability is that you will do much better than you would otherwise.
One way to avoid the need to save large amounts in RRSPs and/or TFSAs is to obtain a job with a solid defined benefit pension plan, especially one with inflation adjustments built in. While not everyone will find a position that offers that kind of benefit, that doesn’t mean it shouldn’t be considered. However, another reason I wanted to raise the issue of defined benefit pensions is that you need to consider that these pension plans will do exactly what I have suggested: Invest in a globally diversified portfolio.
Here’s an example from the CAAT pension:
The specifics of this portfolio are less important, and unlikely to be replicable in a personal RRSP or TFSA anyway, than the point that there is substantial diversity in a variety of investments, which is exactly what most investors should be doing.
I will comment on the RRSP versus the TFSA. If the data cited earlier in this post holds for you as an unattached person such that you are making under $50,000 per year, you will almost certainly be better off investing within a TFSA rather than an RRSP. There are the usual observations about flexibility (the TFSA does not have an end life whereas an RRSP must be withdrawn, used to buy an annuity, or transferred to a RRIF by the end of the year you turn age 71) and tax deductions at contribution time versus tax liabilities when withdrawn (a lower income means a lower marginal tax rate and therefore a less substantial tax deduction in your working years). However, if you are truly in a lower income category, you are more likely to benefit from certain government benefits like the Guaranteed Income Supplement (GIS) and others that are income-tested since withdrawals from a TFSA do not count as income, whereas withdrawals from an RRSP or RRIF do increase your taxable income.
Recognize the Value of Government Benefits
Old Age Security (OAS) and Canada Pension Plan (CPP)
Looking at OAS first, you can begin receiving it as early as age 65. If you are still working past age 65, however, you may wish to consider delaying the start until you retire or substantially reduce your employment income. For each month delayed, OAS increases by 0.6% to a maximum of 36% by age 70. While OAS is taxable, income from OAS does not count against your eligibility for GIS, but employment income will.
Many financial planners advise delaying CPP benefits beyond the standard age of 65 to increase monthly payouts as well, in this case by 0.7% per month delayed past 65, up to 42% by age 70, not accounting for increases due to wage inflation. This can be especially beneficial for unattached Canadians with longer life expectancies. However, given the fact that CPP income counts against your eligibility for GIS, there is a trade-off to be considered, and you might even wish to consider starting CPP earlier so that you can use your payments to increase contributions to your TFSA and reduce the GIS clawback due to a lower CPP withdrawal.
This is a complex situation that requires careful projections, so I encourage anyone for whom a low-income retirement is a possibility to reach out to an advice-only financial planner to review your prospects. The most comprehensive list is maintained by Steadyhand Investment Funds, while a narrower version is available here, consisting only of advice-only planners who are members of the Financial Planning Association of Canada.
Social Assistance and Support Programs
Government benefits are a complex mix of federal and provincial programs that have different requirements for eligibility. If you are having difficulty making ends meet, you may wish to use the Government of Canada’s online Benefits Finder which will identify benefits available federally as well as those that are available in your province of residence.
Housing and Lifestyle Choices
As the table above shows, housing costs are likely the largest single expense you will have. Depending on where you live, purchasing a home may be out of reach for you. While many couples feel a detached or semi-detached home or a townhouse is a necessity, especially if they have or are contemplating children, if your intention as an unattached individual is to live by yourself, renting may be your preferred option. Three reasons come to mind here. First, you do not need to save a significant lump sum of money for a down payment, and second, not owning a home gives you more freedom to relocate if the opportunity presents itself. A third reason is that the money otherwise set aside for the down payment can instead be diverted to your long-term investment portfolio, which is generally fully portable within Canada.
Encouragement to Pursue Financial Security Solo
Achieving financial security as an unattached Canadian is entirely possible, even if the journey has its distinct challenges. By taking intentional steps in each financial planning area, single individuals can lay a strong foundation for their future. Using the financial planning categories that are addressed in comprehensive financial plans, here is a simple summary of practical actions to take charge of your financial well-being:
Budget and Build Wealth
Track your income and expenses, save consistently, and work toward a substantial emergency fund. Building your net worth and reducing debt are powerful ways to create financial resilience.
Invest Wisely
Keeping in mind your goals, diversify your investments and use RRSPs and TFSAs, as appropriate to your situation to grow wealth tax-efficiently. A well-structured portfolio can offer long-term stability and growth.
Optimize Taxes
Use tax credits and deductions to your advantage, and plan withdrawals carefully in retirement to minimize taxes. Understanding tax-efficient strategies can make a significant impact on your financial outcomes.
Prepare for Retirement
Carefully consider your retirement expectations, project your income needs, and set a savings and investment target. With thoughtful planning, unattached individuals can retire with confidence.
Manage Risks
Evaluate insurance options that provide income protection in case of disability or illness. Without a partner’s support, risk management is essential for staying financially secure through unexpected life events.
Plan Your Estate
I did not spend time on estate planning, but I will wrap up this post with a note that, if you have assets, a will is a good idea. You may want to distribute those assets to siblings, nephews, nieces, or charity. A will allows that to happen with the least expense and fuss.
Perhaps more important is to name a power of attorney for property and for personal care (Ontario terminology; your province will have different language). Making these arrangements with someone you trust will bring you significant peace of mind if you ever find yourself disabled or dealing with a long-term illness.
Pursuing financial security by yourself can be empowering. While it may come with unique challenges, unattached Canadians can achieve their financial goals, build a stable future, feel confident about their financial choices, and enjoy the freedom that financial independence brings.
This is the 267th blog post for Russ Writes, first published on 2024-11-04
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.