“If someone isn’t lucky enough to have a company pension, it’s even more important for them to build up savings on their own,” says Millie Gormely, an authorized financial planner with IG Wealth Management in Thunder Bay, Ontario. “But that’s really difficult when you’re supporting yourself and your children, because you have to make do with a lot more of that income.”
There were about 1.84 million single parents in Canada in 2022, and so they face unique financial challenges. For starters, the first caregiver could also be taking up greater than her share of the responsibilities and costs of raising their children, paying bills for every little thing from groceries to clothing to childcare. And because of inflation, everyone knows that the price of living has risen sharply lately. On top of that, a single parent might also must bear the burden of saving for his or her kid’s education (read more about RESP planning), covering medical expenses, and more. And then there’s the proven fact that single parents are likely to have lower incomes anyway. According to Statistics Canada, single parents with two children report a median household income of only a few third of what dual-income families of 4 earn. (Not half, )
All of those financial burdens can pose a serious hurdle to retirement planning, but that doesn’t suggest it’s inconceivable to avoid wasting for the long run.
Define your goals
The first step is to discover your long-term goals (that is where consulting a financial planner can make it easier to). You should determine your required income in retirement and the way much you could save to succeed in your goal. The next step is to take an in depth take a look at your spending habits and budget to determine what funds you’ll be able to put aside to your retirement.
You will probably want to leaf through your old bank and bank card statements to get an idea of your spending on essentials (like rent, groceries, transportation, and childcare). You must also get an summary of your debts, like bank card balances, personal lines of credit, and mortgage payments, to find out your fixed expenses. All of this can make it easier to set a budget you’ll be able to live with—and determine what you will have left over for retirement.
If there is not much left, don’t despair. Even a small monthly savings will make it easier to in the long term, Gormely says. “Contributing regularly, rather than nothing, will get you much further than if you just sit back and do nothing,” she says.
Evaluate potential sources of income for retirement
You can have more options than you’re thinking that. A registered retirement savings plan (RRSP) is a long-term investment account registered with the Canadian federal government that helps you save for retirement tax-free. It offers loads of room to let your money grow. For example, your RRSP contribution limit for 2024 is the same as 18% of your 2023 earned income (or $31,560, whichever is less). You also can use unused contribution room from previous years.
A tax-free savings account (TFSA) is another choice. Like an RRSP, a TFSA can hold any combination of eligible investment vehicles, including stocks, bonds, money and more, and the expansion is tax-free. “In general, someone with a lower income may be better off maxing out their TFSA first and then looking to their RRSP as a source of retirement income,” Gormely says.
