Lifestyle | Don’t forget single retirees!

There was a hint of reproach.

“I appreciate the financial columns on retirement, but there is a glaring lack of columns for singles with restricted retirement income, that is to say between $35,000 and $50,000,” Monique wrote to us* . Please take us as an example and give us hints to help us. We are a majority in society. THANKS. »

The 65-year-old woman wanted to serve as an example.

The situation

“I retired at 61, because physically it had become difficult,” she said by telephone. Until then, she received a salary of approximately $50,000 per year.

At age 61, she began receiving a pension from her employer’s defined benefit pension plan, which then amounted to $1,152 per month after tax, guaranteed until death, but not indexed to the cost of living. .

She had requested to immediately receive the Quebec Pension Plan (QPP) pension, to the tune of $671 per month after tax. “In total, $1,823 per month,” she says.

At his 65^e birthday, last October, his employer’s retirement pension was reduced to $771 per month.

She then began receiving the Old Age Security (OAS) pension of $707 per month.

At the end of 2023, his QPP pension had reached $677 per month.

In short, she estimates that her income at the end of 2023 will be around $2,150 per month, or a little more than $25,000 per year.

She lives in a fully paid-off condo, which she estimates is worth $300,000. The co-ownership charges are set at $266 per month, plus four special annual contributions of $225 each. The property tax reaches $1750 per year.

His car is 10 years old “and is still good for a long time”.

The balance on his credit card is rigorously repaid each month. In short, she has no debt.

She has $424,000 in a tax-free savings account (TFSA) and a registered retirement savings plan (RRSP).

“I also have cash of $24,000 to cover unforeseen events,” specifies the far-sighted retiree.

Unforeseen events that have already started to manifest themselves.

“For the past few months, with the increase in the cost of groceries, gas and everything in general, I have not had enough income,” laments Monique. I have to dip into my savings. Despite everything, I think I’m in a good financial position, but being single, I still have to be careful not to spend too much. »

“My expenses include restaurants, show and sports tickets, gym fees,” she lists.

During the first half of 2023, its monthly deficit varied from $50 to $100.

“On the other hand, at age 65, my monthly income increased with federal pension income. »

In summary, his situation does not seem alarming. For the moment. But what will the future look like?

What clues, as she asks, could a counselor give this single woman?

The answer

David Truong already spots a favorable clue: “She has an emergency fund of $24,000! It’s perfect ! », rejoices the president of National Bank Planning and Social Benefits.

Monique has no debt and has accumulated approximately $450,000 in retirement savings and cash flow, plus $300,000 in equity in her condo, for assets totaling nearly $750,000.

“It’s still a good result,” notes the financial planner.

“But the house still represents 40% of this balance,” he adds.

Obviously, we can’t blame Monique for the recent rise in the value of her property.

However, “in financial planning, there is an informal rule which says that if your personal-use assets, in this case the condo, represent more than 25% of your balance sheet, it can put pressure on monetary flows at retirement,” says David Truong.

Like its owner, the property will age and generate increasing health expenses, commonly referred to as maintenance and repairs.

Bachelor’s budget

It is generally considered that the budget of a single person is between 60% and 70% of that of a couple who enjoy the same standard of living. Retirement doesn’t change anything in substance.

It is therefore on her expenses that Monique will have to focus her attention, to spot signs of slippage. David Truong rounds them up to $2,100 per month, or $25,000 per year.

He made a retirement projection based on a balanced portfolio with a return of 3.8% and indexation of 2.1% (on very long-term average).

“It’s coming, but it’s definitely tight,” he says.

Assuming his savings run out at his 96^e birthday, she would be able to maintain an indexed cost of living of $27,000 per year until the end of her days.

Compared to its current budget, the gap is slim. “She can’t afford to splurge, although she seems very satisfied with her entertainment spending,” observes David Truong.

However, he points out, “nothing is linear in spending and there may be unforeseen events”.

His car is in good condition, but it is doubtful that it will last another 30 years. Health spending will increase. Over time, it will likely be necessary to draw more heavily on retirement savings.

How can Monique expand her budgetary margin of safety? There is little hope in terms of reducing one’s lifestyle. It would be difficult for him to find comfortable accommodation for less money, underlines the planner.

What remains is the condo, a fixed asset. How to monetize it without getting rid of it?

She could open a line of credit secured by her property.

“But you have to qualify for financing, which depends on your income. The criteria are strict, and the interest rates are not necessarily in her favor for the qualifying rate, although she still has a fully paid for house. »

A reverse mortgage

“The other option to generate a little more flexibility is what we call the reverse mortgage,” suggests the planner.

With this formula, a specialized institution lends a sum guaranteed by the property without obligation to repay capital or pay interest.

The amounts lent and the accrued interest are generally repaid upon sale of the property, at the latest upon the death of the last co-owner. The authorized loan, generally between 10% and 55% of the equity value of the property, depends on different factors, such as the age of the co-owners (therefore their probability of living a long time), the type and location of the property (therefore its capital gain potential) and the interest rates in force (therefore the accumulation of interest payable at maturity).

“The advantage of the reverse mortgage is that there is no income qualification,” notes David Truong.

The amount granted can be collected in a single visit or in installments spread over time.

“Interest accrues from the amounts of each advance and not from the total amount,” specifies the planner.

But nothing is perfect.

“The downside to a reverse mortgage is that the interest rate is a bit higher and is generally non-negotiable. »

Nothing obliges Monique to use it immediately. “The minimum age is 55, but there is no maximum age,” informs our advisor.

With regard to the reverse mortgage, her single status gives her a certain comfort: she does not have to worry about leaving a home or an inheritance to a surviving spouse.

Postpone PSV

Monique requested to receive the QPP pension at age 61, from the start of her retirement. She has been receiving PSV since she was 65^e birthday, which occurred last October. However, planners generally recommend postponing public pensions for a few years to maximize them. The QPP pension, for example, is increased by 0.7% for each month of deferral after age 65.

It is a form of long-term insurance: this increased annuity is indexed each year and paid until death, however late it may be. Of course, in the interval between age 65 and the start of receiving the pension, it will be necessary to compensate for the shortfall by drawing more on retirement savings. But the probabilities of survival favor this strategy.

It is too late for the RRQ, but Monique can still use it for the PSV.

In fact, the person who has received the PSV for less than six months can request the cancellation or postponement of payments. From the date her request is granted, Monique will have six months to repay the amounts received up to that point.

“At age 70, she could receive nearly $3,500 more per year,” estimates the planner. “Mathematically, in the long term, it makes sense.”

“If she wants clues from a counselor, this is one!” », he adds with a laugh.

Here are others.

Since she is single and childless, Monique will want to specify in a will to whom she will leave her property, rather than letting the Civil Code decide. She must ensure, if this has not already been done, that a representative in anticipation of her incapacity has been appointed.

* Although the case highlighted in this section is real, the first names used are fictitious.