Single and secure

If you’re currently living the single life, you already know it has lots of advantages. You get the whole bed to yourself. You can watch what you want on TV. You can move to a new city on a moment’s notice to pursue the career of your dreams. You can live the life you want—and you don’t have to compromise.

Except, perhaps, when it comes to your finances. In that realm, it’s hard not to feel that couples have it better. After all, when you book a hotel room, you often pay just as much as a couple does. When you go grocery shopping, everything seems to be packaged for two (or more). There’s no family discount for you at the zoo, and if you get sick and can’t work, there’s no one to fall back on.

Scot Blythe, a 50-year-old writer in Toronto, is all too familiar with the extra financial cost and worry that comes with living solo. “Not only do I have to bear the brunt of housing costs fully on my own, but then there’s Internet, cable, magazine and newspaper subscriptions. Couples can share the cost, but I have to pay for everything on my own. Even something as simple as ordering a takeout pizza is more expensive.”

After spending six years in post-graduate studies and several more years working in writing jobs, Blythe is starting to worry about keeping up. “For the past few years I’ve been worried about having enough money to live on in retirement,” he says. “It’s scary. I’m determined to save as much as I can for my future.”

To remedy the situation, he has put himself on a strict budget. After paying for his rent, food, utilities, transportation and other expenses, he makes regular RRSP contributions and invests in several mutual funds. But he’s not sure he’s doing enough. “It can be stressful. There’s only me to rely on and after taxes and expenses, one income—even a fairly large one—doesn’t go very far.”

Singles everywhere share Blythe’s concerns. With both women and men marrying later in life, and more and more of us opting not to marry at all, singles are now the official majority. According to Statistics Canada, 52% of Canadian households are headed by single people, and that percentage is growing higher every year. Not that you’d guess that from reading most personal finance advice. It’s always couples this, and couples that. What about the singles?

To help correct this gross oversight (and appease the dozens of readers who have written to us complaining that we only feature couples in our Family Profiles) we here at MoneySense have decided to help our single readers get on the road to good financial health with a unique guide, just for them. Much of the advice for singles is similar to that for couples, but we’ll aim to focus on the financial issues specific to the single life, namely the fact that you’re often supporting a family on one income, you have less security because there’s no second breadwinner, and you have to be more self-reliant, especially if you want to plan for an independent retirement. Whether you choose to be single, you’re divorced, or you have lost a spouse, read on. Here are the key strategies that all singles should adopt to ensure wealth, security and peace of mind.

Track your costs
Singles of all ages face discrimination in housing, taxes, child custody and even travel and entertainment. All of these things can result in disproportionately higher costs per capita for singles than married couples. For instance, a couple with two incomes generally has an easier time qualifying for a mortgage. The cost of a single hotel room or cruise ship reservation is often little different from a double.

Coupled with those higher expenses is the fact that the median income for households headed by a single person is substantially lower than for couples. According to Statistics Canada, the median family income for a household headed by a couple in 2007 was $73,400 annually, more than double that of a household headed by a single person with at least one child, at $34,500 annually. Singles living on their own fare even worse. The annual median income for their households is only $22,800. When you also take into account the fact that singles devote a larger percentage of their income to basics such as food (8.3% of their gross monthly income, versus 5.6% for couples) and utilities such as cable (1.8% of gross monthly income, versus 1% for couples), it’s easy to see how singles often find they have little money left at the end of the month.

That’s why it’s crucial to set a budget you can stick to. Keep a journal of your monthly expenses so you know where every penny is going. The aim is to make sure you clear up any debt and eventually allocate money to savings. “I keep a running budget and have a target for all living expenses of $35,000 net a year,” says Blythe. “I also aim to save 30% of my salary through a pre-authorized monthly contribution plan because I know I will need that money in retirement. I’m a late saver and I have to catch up.”

Build an emergency fund
If you’re single, a setback such as losing your job or breaking a leg can be frightening. There’s no spouse to care for you at home, and more importantly, there’s no second income coming in to pay the mortgage or rent. Where will the money come from until you get back on your feet? Financial experts say that as difficult as it is, it’s crucial that singles build up an emergency fund. A good rule of thumb is to have at least six months worth of living expenses in a savings account. Once you’ve set aside enough for your emergency fund, you should start contributing to a different account for longer term savings that can be used for the down payment on a home or the beginnings of a investment portfolio.

Christine Clarke, an entertainment editor in Toronto, realized just how important having an emergency fund was when she lost her job this past spring. “I hadn’t saved any money and I was laid off with no warning,” says Clarke, 29. “Even though I was able to get another job within six weeks, it taught me a good lesson. That experience pushed me to be more conscientious about my savings account. I now make a consorted effort to contribute part of my salary to emergency savings every month. It’s been good for me.”

Boost your income
One of the biggest drawbacks of being single is the fact that you have only one salary to depend on. Back in the 1950s, living on one salary was the norm, but it’s tough to do these days. Many singles turn green with envy when they see their dual-income friends easily pulling in a combined six-figure income while they have to scrape by on half of that.

To fight back, you need to use your unique advantages as a single person to boost your paycheque. One of those advantages is often increased mobility, and the motivation to further your education.

Lynn Hampson, a single woman living in Toronto, made use of her ability to suddenly pick up and move to go back to school. She relocated to Winnipeg in 2009 to study computerized design, and plans to graduate next year. Hampson (not her real name) is hoping that completing the program will help her boost the $55,000 a year she earned as an interior designer to more than $80,000. “These courses will help me start up my own consulting business,” says Hampson, who’s now 40. “It will mean I can earn more and have better control over my life. The extra income will also help me save more each year.”

Another single woman—we’ll call her Trina Marcovitz—used a different approach to increase her salary. Knowing that a degree in social sciences could condemn her to low-paying jobs if she wasn’t careful, Marcovitz, now 49, became proactive about increasing her salary while still in her early 30s. “I looked at which industries paid the best and targeted my job search to those industries,” says Marcovitz, who now earns more than $120,000 a year as a salesperson for an Alberta pharmaceutical company. “I targeted jobs where commissions and bonuses were regular parts of your compensation package, along with a healthy salary. And since I was single, I wasn’t afraid to move to a different province if a better opportunity presented itself. I’ve come out way ahead monetarily because of that strategy. I would have been a fool to stay put and not jump at other opportunities.”

Turbo-save for retirement
We hate to say it, but the sad truth is that most singles have to save a higher percentage of their income than couples to ensure a happy retirement. There are three main reasons for this.

First, singles lack the economies of scale that couples have. As we have already shown, couples can share many expenses, such as groceries and housing, and singles can’t.
The second reason is because singles lose out in a big way when it comes to taxes. In Canada taxes are applied to individuals, not families. That means a single person earning $100,000 a year pays far more income tax than a couple earning the same amount between them. In Ontario, for instance, the single person would pay about $31,000 a year in taxes and government benefit payments, versus $24,000 for the couple (assuming each member of the couple earned $50,000).

In retirement, singles can’t take advantage of pension splitting, so they could end up paying more tax on their RRSP savings when they withdraw them as well. “When it comes down to strictly financial and tax matters, the numbers show that everyone would benefit from being married,” says Marc Lamontagne, a fee-for-service adviser with Ryan Lamontagne in Ottawa.

The final strike against singles is that they are much less likely to own their own home. That means they’ll have to save more, because they’ll have an extra expense when they’re retired: their monthly rent. Plus if you own a home, you’re less likely to run out of retirement savings late in life. “A home is your ace in the hole,” says Jim Otar, a certified financial planner and retirement planning expert in Thornhill, Ont. “If times get tough in retirement, where there’s a house there’s hope.”

To figure out how much extra you have to save as a single, you first need to figure out how much of your working income you’ll need to replace. Malcolm Hamilton, an actuary and partner with Mercer Human Resource Consulting in Toronto, says a single person with a paid-off home will need to replace about 60% of his or her working income. If you don’t own your own home, that jumps closer to 75%.

To make sure you have enough savings to provide that income, if you’re a single with your own home you should aim to save 10% to 15% of your total income each year for retirement. If you think you’ll still be renting in retirement, you have to save more like 20% to 25% of your income—significantly more than a typical couple would need to sock away.

Singles who rent and have children, however, can aim for less in savings—10% to 15% of their income. That’s because child-related expenses will disappear in retirement, freeing up several thousand dollars that can be redirected to paying for living expenses. In other words, because singles with kids are used to living on a smaller percentage of their income while they are working, they can replace less of their working income in retirement and still maintain a standard of living they’re used to.

Invest frugally
Talk to any couple you know and they will quickly tell you that one partner (the one with a head for numbers) handles all of the financial decisions for the household. But if you’re single and don’t have a mind for money matters, you’re out of luck. “You can’t talk finances with family and friends really,” says Bonnie Livingstone, 64, a health-food store owner in London, Ont., who’s been single for 16 years now. “It’s rare. And I find that I procrastinate because I have so many things on the go. Saving and investing are brushed aside to be dealt with another day, and that day seldom comes.”

For the most part, singles should use the same investments in their RRSPs that MoneySense recommends for couples. But there are a few factors specific to singles that you have to watch out for.

The first is that because of the higher per capita taxes for single households, plus the lower net incomes, most single households will have smaller investment portfolios than an equivalent couple. This unfortunately means that investing expenses will take a proportionately larger bite out of your portfolio. For example, imagine you’re a stock-picker paying $25 per trade. If you’re a single person with a $200,000 portfolio, every trade is a higher percentage of your holdings than for a couple with a $400,000 portfolio. “I’m penalized two ways,” says Blythe. “It’s hard for me to qualify for the $100,000 minimum needed to be eligible for lower fees in my brokerage account. And I also have a harder time building up higher savings to qualify for better interest rates on my account. It’s tough.”

That’s why it’s especially important for singles to keep their investment costs low. To do that, we recommend using an indexing strategy such as the Couch Potato (see page 44 for a recommended portfolio), or a low-cost balanced mutual fund (see page 42 for some recommended funds).

Of course, if you’re one of those singles who really doesn’t have a head for money, you may be more comfortable hiring a fee-only investment adviser to put together an investment strategy for you. Such a financial plan will chart out a path to achieve both your short-term and long-term financial goals (see MoneySense.ca for a directory of fee-only planners). Interview two or three advisers and when you find one you like, visit him or her annually to review your plan and make sure you’re on track.

That’s what Julie Gélinas, 30, did last year. Realizing that the money from her full-time job as a designer in Toronto was slipping through her fingers, Gélinas made an appointment to talk to an adviser at her local bank branch. “I had been procrastinating,” says Gélinas. “I was 29 and single and didn’t know much about investing. But I wanted to learn.” So far, Gélinas says it has worked out well. “I’m a conservative investor and I let the adviser know that. We worked out a fairly conservative investment strategy for me using mutual funds. I contribute something to the investment portfolio every month, and for the first time in a long time my money is growing.”

Get the protection you need
When couples start thinking about insurance, they usually start with life insurance, but for singles—especially childless singles—disability insurance is often more important.

As a single, you have no backup income, so it’s critical that you have support in case you become disabled due to injury or illness and can’t work. Consider that if you’re under 65, you’re 60% more likely to become disabled than you are to die. “Your greatest asset is your ability to go to work every day,” says Lorne Marr, an independent insurance broker and founder of LSM Insurance Services in Markham, Ont. “If you lose that ability, disability insurance fills in the gaps.”

Many workplace benefit plans include disability insurance, but if yours doesn’t, get enough disability insurance to replace at least 80% of your after-tax income. If you get private disability insurance your payments are tax-free (the payout from most corporate plans, on the other hand, is taxable). So if you’re earning $3,000 a month after taxes now, you’ll need a private disability policy that will pay out at least $2,400 a month if you make a claim. Even if you do have disability insurance through work, there may be a cap on long-term disability payments. If that cap is too low, you may want to supplement it with a private plan.

Once your disability insurance is in place, then it’s time to think about life insurance. If you don’t have kids or other dependents, you won’t need much. A term-life policy for $25,000 or so to pay off funeral expenses should be plenty. Singles with kids, on the other hand, need a lot more. The general rule of thumb, says Marr, is to get enough insurance to cover 10 times your income if you have kids under 10 years old (five times your income for singles with kids over 10), plus the amount needed to pay your debt. So if you make $50,000 a year, you have $150,000 in outstanding debt, and two kids under 10, you will need $650,000 worth of term life insurance. To get such a payout, the rate for a 20-year term policy for a 40-year-old male non-smoker in good health is roughly $77 a month. Look for other quotes at Term.ca.

Draw up a will
You may think that because you don’t have a spouse or kids, you don’t need an estate plan. That would be wrong. Everyone should have a will as well as a power of attorney and what’s called a living will. “To be honest, I’ve only just started thinking about establishing a will,” says Blythe. “I haven’t decided yet who to donate my money to, but I have a lot of rare books that I’d like to donate to a university library that will appreciate them. That’s important to me.”

A power of attorney is a legal document that gives someone else the right to act on your behalf. A Continuing Power of Attorney for Property (CPOA) covers your financial affairs and allows the person you name to act for you, even if you become mentally incapable.

A living will is a document that says what you want to happen if you become ill and can’t communicate your wishes for treatment. It’s common, for instance, for people to write a living will saying that they don’t want to be kept alive on artificial life support if they have no hope of recovery.

Suddenly single
While living alone your whole life has its financial challenges, the toughest situation possible is finding yourself suddenly on your own as the result of a separation or divorce, or the death of a spouse. If this happens to you, make sure you have adequate support. Make sure you get your fair share of the assets from a failed marriage, as well as adequate child support for your children. If you’ve never managed money before, seek out good financial advice from a trusted expert.

But even if you do all this, the truth is that you will have to make some adjustments to your lifestyle fairly quickly. “Simply put, in most cases you’ll have to learn to budget on less money,” says Warren MacKenzie, president of Weigh House Investor Services in Toronto. “That may involve hard decisions like moving to a less expensive home.” What you can’t do is ignore your situation and hope it will go away. Focus on your family and friends and use those connections to get the help you need. Do your own research and reading. Part of the process of becoming single means that you have to be more independent, which is not always a bad thing. “You can be happy with a lot less than you thought you needed,” says MacKenzie. “You can have a wonderful life on any income. Shattered dreams can always be repaired.”

Bonnie Livingstone is living proof of that. “When my husband died several years ago, I never imagined that I could live alone, do everything myself and still live a fun life,” she says. There was a really rough two-year adjustment period after his death, but since then she has slowly recovered and even learned to love the single life. “I can do what I want, when I want. It’s fabulous. And since I put my financial plan in place a few years ago, I like myself even more. It’s all worked out well in the end.”