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Singles face RRSP, retirement challenges

(Special) - It seems Canadians are having financial troubles in retirement.

Numerous studies show many Canadians are not financially prepared for retirement and a recent ING Direct poll found that 30 per cent of retirees are being forced back into the workforce, nearly half of them for financial reasons.

This disturbing news becomes more problematic when you consider Canadians are not contributing fully to their RRSPs. In fact, they have $600 billion in under-contributions to a plan that was put in place in 1957 to help them save for retirement.

One segment of the population that faces unique challenges in preparing financially for retirement is singles.

"If you're single for whatever reason, whether it's through a divorce, the death of a spouse or partner, or just not marrying, the buck stops with you when it comes to saving or planning for your retirement," says Chris Buttigieg, Senior Manager, Wealth Planning Strategy with BMO Financial Group.

"With couples there is usually one person who takes the lead in financial matters and the other person is in the background, but when your single it's usually only you, so it becomes extremely important to understand your financial situation - what are your assets and liabilities, your income and expenses - and to create a budget to manage your inflows and outflows, "says Buttigieg. "When you're single there's often no one to tell you you're not saving enough or to pull in the reins on your spending so it's even more important to work with a financial planner and be willing to take constructive criticism and advice."

Singles usually will have only once income and have to shoulder the burden of expenses themselves while couples often will have two incomes in the household and share expenses, allowing them build a bigger nest egg for retirement.

Couples, unlike singles, also have the advantage of using spousal a RSP, which allows them to create a retirement fund for each partner/taxpayer.

One spouse can choose to contribute to their own personal RSP or to an RSP in their spouse's name while claiming the contribution as a deduction on their own tax return. The immediate benefit to the contributor is the tax deduction. However, in the long term the overall family tax bill will be reduced as income will be available for withdrawal by each spouse during retirement.

In 1993 the Canada Revenue Agency revised the definition of spouse to include common-law spouses. If you have lived in a conjugal relationship for one year or more, or live together and have a child you can make a spousal RSP contribution.

"Saving early while working and putting as much away as you can is really important for singles, particularly now that expenses keep going up and people are living longer," Buttigieg says.

People who are widowed get a "double shock" when their partner dies. "The expenses continue but there's one less income, which can lead to a deficiency," Buttigieg notes. "Some of the first resources people draw on to fill that gap are insurance and personal and retirement savings like an RRSP."

One strategy some couples forget is to designate their RRSP to their spouse, which allows the funds to be transferred from the deceased spouse to the surviving spouse's RRSP tax free.

Pro-active financial planning can soften the shock of widowhood by ensuring there is appropriate insurance so the surviving spouse is looked after financially and the deceased spouse's pension plan includes a last survivor's benefit.

"The last survivor's benefit is often about 60 per cent, so there is a reduction in income, which is why financial planning is so important," says Buttigieg. "It's a really good idea to stress test your financial plan for the three D's - death, divorce and disability. Many people just are not adequately prepared for death and to face widowhood."

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Copyright 2014 Talbot Boggs

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