“If someone isn’t fortunate enough to have a company pension, it’s very important that they build their own,” says Millie Gormely, Certified Financial Planner at IG Wealth Management in Thunder Bay, Ont. “But that’s really hard to do if you’re going to support yourself and your children, because you have to stretch that money a lot.”
As of 2022, there were approximately 1.84 million single-parent families in Canada, and they face unique financial challenges. First, the primary caregiver may bear more than his share of the responsibility and costs of raising their children, paying bills for everything from food to clothing and child care. Also, due to inflation, we all know that the cost of living has increased significantly in recent years. In addition, a single parent may also be responsible for saving for their children’s education (read about RESP planning), taking on medical expenses and more. Then there’s the fact that single parents often have less money to work with in the first place. According to Statistics Canada, single-parent families with two children report an average household income of only about a third of that of families with four children. (Not part, the third time.)
All of these financial difficulties can be a huge obstacle to planning for retirement, but it doesn’t mean it’s impossible to save for your future.
Identify your goals
The first step is to identify your long-term goals (consulting a financial planner can help with this part). You will want to find your desired retirement income and how much you will need to reach your goal. The next step is to take a closer look at your spending and budgeting to find funds that you can put aside for retirement.
You may wish to review past bank and credit card statements to get a clearer picture of what you’re spending on essentials (which can include rent, groceries, transportation and childcare). You’ll also want to get a clear picture of your debts such as credit card balances, personal lines of credit and mortgage payments to help you identify your fixed expenses. All of this will help you figure out a budget you can live with—and what you have left over to save for retirement.
If there is a lot left, don’t lose hope. Even small monthly savings will help you in the long run, says Gormely. He says: “Contributing something rather than doing nothing will always put you ahead more than just giving up,” he says.
Explore potential sources of retirement income
You may have more options than you realize. A registered retirement savings plan (RRSP) is a long-term investment account registered with the federal government of Canada and helps you save for retirement on a tax-deferred basis. It allows a lot of room to help your money grow. For example, your RRSP contribution limit for 2024 is equal to 18% of your 2023 earnings (or $31,560, whichever is lower). You can also enter the unused donation room from previous years.
A tax-free savings account (TFSA) is another option. Like an RRSP, a TFSA can hold any combination of suitable investment vehicles, including stocks, bonds, cash and more, and the growth will be tax sheltered. “Typically, for someone in the lower income bracket, they would be better off maxing out their TFSA first, then looking to their RRSP as a source of retirement income,” Gormely said.
Source link
