Let me introduce you to my three imaginary friends: Rory, Amy, and Rose. Earning only $35,000 a year at most, each has managed to sock away 5% of that income every year, and by age 67 have each accumulated $210,000 in savings.

At retirement, all three will have the same income: $6,624 in Old Age Security benefits, $9,500 from the Canada Pension Plan, and minimum RRIF withdrawals starting at $9,135 a year*.

For those still counting, Rory, Amy, and Rose each will receive $25,259 and pay $1,562 in income taxes.

Related: 8 retirement mistakes to avoid

Rory and Amy get married. Their combined household income after taxes is now $47,394. Rose is alone, with $23,697 a year. And it is a truth universally acknowledged that the same standard of living is cheaper to buy for a couple than it is for a single person.

Houses cost the same whether one person or two people are buying them, cooking at home for two isn’t twice the cost as cooking at home for one, and a car that gets you from point A to point B won’t cost you double depending on if the passenger seat is occupied or not.

I think we’d all agree that in comparison to Rory and Amy’s $3,949, Rose’s monthly total income of $1,974 is going to be very difficult to live on.

This situation – while technically fair, since for the same amount of savings each person receives the same amount of income – doesn’t strike me as equitable. By treating every individual exactly the same, our retirement programs are either rewarding the choice to create a permanent household with someone else or penalizing the choice not to, depending on which side of the floor you happen to be arguing from.

(It’s here that I’m compelled to state that I don’t have an answer for this that is both fair and equitable, and I doubt anyone else does either.)

Related: What’s all this retirement planning for, anyway?

So what’s a singleton to do? Shack up for money? Hardly.

The truth is that short of making more money in your working years, retiring later, or marrying for money, there’s not much a singleton can do to bring his or her income in line with a couple of similar means, but forgoing RRSPs altogether in favour of TFSAs might make that income last longer by maximizing income-tested benefits like the Guaranteed Income Supplement.

Normally I’m not one to advocate cut-off-your-nose-to-spite-your-face strategies that reduce one kind of income to increase another, but lower-income singletons (and couples, for that matter) would be well-advised to calculate – at least roughly – the benefit they’re receiving from an up-front tax deduction for RRSP contributions against the reduction in GIS eligibility once those contributions are withdrawn and are counted as part of their income, which in turn has a big impact on how long their own savings will last overall.

Related: What to do with your money after retirement

Let’s go back to our friend Rose to illustrate my point. Her annual income of $23,697 is too much to qualify for the Guaranteed Income Supplement, even though her Old Age Security benefit isn’t included in the calculation.

If, however, her $9,135 RRIF withdrawal was instead a withdrawal from her TFSA, not only would she pay no income tax, she’d also receive a $3,608 GIS benefit.

Still counting? That means in real income she’ll receive $28,867 annually – or, if we want to compare apples to apples – to get the same amount of income as in the previous example, she’d only need to withdraw $3,965 from her own savings – $5,170 less than if she were withdrawing from a RRIF instead of a TFSA.

The math works for Rory and Amy too, just not as dramatically. Following the same strategy as Rose would allow them to withdraw $3,484 a year less and have the same income as they would if they were withdrawing from RRIFs.

Now, as with any kind of financial advice, this might not apply to you. In fact, if you’re reading a personal finance blog, it might not even be news to you. But it’s worth sitting down and doing the math as it applies to your own situation, and worth telling your friends about.

RRSPs aren’t the only answer for retirement savings, and – in some, particularly for singles – they might even be the wrong answer.

*This is the point at which – if I were a more dramatic woman, that is – I would be shouting “GET THEE TO AN ANNUITY!”

Sandi Martin is an ex-banker who left the dark side to start Spring Personal Finance, a one woman fee only financial planning practice based in Gravenhurst, Ontario.  She and her husband have three kids under five, none of whom are learning the words to “Fidelity Fiduciary Bank” quickly enough.  She takes her clients seriously, but not much else.

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27 Comments

  1. Dan @ Our Big Fat Wallet on June 19, 2014 at 9:27 pm

    I know my standard of living went up when I got married – it was like my income suddenly doubled but the expenses (major ones like a mortgage payment) stayed the same. It’s much easier for a dual income couple to get ahead as long as the income is used wisely. I think singles (and couples) should make use of both the RRSP and TFSA when planning for retirement. Leaning too much towards one over the other can have negative consequences

  2. L on June 20, 2014 at 6:04 am

    Interesting! I’m using both both RRSPs and TFSAs, but I admit I wish the contribution limits to the TFSA were higher. I like examples like this because it makes it easier to understand how the different pieces fit together. 🙂

    • Sandi on June 20, 2014 at 7:48 am

      I know – it’s all well and good to tout TFSAs like this as a solution, but not super-helpful with only $31,000 of room available right now. Sometimes exploring an RRSP melt-up solution for folks closer to the age of OAS/GIS eligibility can be useful.

      • Echo on June 20, 2014 at 8:50 am

        I’d prefer a melt-down…

        • Sandi on June 20, 2014 at 8:51 am

          You would.

          • Echo on June 20, 2014 at 8:59 am

            My kids have perfected that solution.



  3. xoxox on June 20, 2014 at 6:11 am

    Interesting stuff. By the way marriage may also be a benefit to those making much larger amounts in retirement (those who are unconcerned about the GIS), since they can now income split pension income. In a situation where one spouse makes significantly more in retirement income, splitting may allow the higher income spouse to avoid the OAS clawback. It will also reduce the overall tax bill.
    One question about the article. I missed the significance of the last line: “GET THEE TO AN ANNUITY!”? Did I miss the discussion of annuities somewhere in the article? Or should you have written: “GET THEE TO A TFSA (in some cases)!”?

  4. Peter on June 20, 2014 at 7:52 am

    Just wondering how they got to max CPP earning $35000 or less per year?

    • Sandi on June 20, 2014 at 8:08 am

      They didn’t. They retired at 67 with less than maximum (which is $12,459 as of today), and an age adjustment factor on their age 65 benefit of 116.8%.

  5. Robert on June 20, 2014 at 8:25 am

    Whether marriage leads to less cost per person depends a lot on the 2 people involved. It can as easily cost equal or more.

    When you broke into and exclamation in Shakespearean English at the end it made me wonder if you have some insights into RRIF vs annuity that you should share!

    • Sandi on June 20, 2014 at 8:38 am

      I’d say in a low-income case like Rose’s where there’s a question of being able to meet basic needs, and where small variations in income have a greater impact than on someone with more flexibility, an annuity would be a better option than a RRIF.

  6. Sheryl on June 20, 2014 at 9:59 am

    How does their time away with the Doctor impact their retirements?

  7. Linda on June 20, 2014 at 10:11 am

    Very interesting post!! With the allowed splitting of pension income, does it mean that the spousal rsp is obsolete? What does a person consider when taking out rsp money to put it into tfsa account, besides present income, and allowable tfsa room? Thanks!

    • Sandi on June 20, 2014 at 10:49 am

      My very frustrating answer to the spousal RRSP question is “it depends”. Certainly the spousal RRSP is less universally useful now than it was before retirement income splitting was allowed, but there are still situations in which it can be useful.

      With regards to withdrawing money from an RRSP to put into a TFSA, you have do a long-term cost/benefit analysis by estimating your GIS(and any other provincial income-tested benefits) received vs. your taxes paid on the withdrawal. This paper might help: http://openpolicyontario.com/wordpress/wp-content/uploads/2012/09/maximizing-Paper-V6.pdf

  8. jolene on June 20, 2014 at 11:38 am

    Amy and Rose should move in together and share expenses and go on fabulous trips together. And they wouldn’t have to worry about an ageing spouse.

    • Robert on June 20, 2014 at 11:49 am

      Now I can stop worrying about Rory. He can perhaps find a retired teacher and do a bit better.

  9. Paul N on June 20, 2014 at 12:36 pm

    OR… Rory and Amy can get divorced in a few years after having some kids like the other 50% of our population does these days and be worse off financially then staying single and going it alone. Also something to think about…. The world does not always have a fairy tale ending.

    I know… there is always the one person to rain on the party, I’m sorry….

    • Beth on June 21, 2014 at 6:47 am

      I was going to say the same thing. I’ve been going it alone so far and yes, some of my married friends are doing better — but some are doing worse. It’s not just divorce, but when spouses aren’t on the same page about financial goals. (I.e. one is a saver and the other is wracking up consumer debt — or they’re both digging themselves into debt.)

  10. Wes on June 20, 2014 at 4:52 pm

    Let’s say Rory, Amy and Rose retire in 2014 at the age of 67 so they can collect their CPP full benefits, there is no way they’ll have enough funds to withdraw from their TFSA accounts by only contributing 5%($1750) of their income per year. If TFSA was implemented in the late 1950s as was the RRSP, they might have a chance. The maximum contribution limit might be even lower than today’s maximum limit. This is my dilemma today. If TFSA was around when I started contributing to my RRSP in the early 80s, I would’ve chosen to contribute to TFSA instead knowing the beneficial tax treatments we enjoy. I withdraw as much as I can from my RIF and use the extra money to contribute to our TFSA accounts. My advise ( I’m not a financial adviser!) to low income earners, use TFSA to save for anything, forget about RSP. It’s a tax trap!

  11. Memat on June 22, 2014 at 6:00 am

    Sandi, you have demonstrated how valuable is a good financial advice. The problem in this case is that you never know how you are going to end up at the end. You may be married when you are making the plans for retirement but not at the end or vice verse. I think you should plan your estate or living arrangements for retirement as well.

  12. ken on November 14, 2019 at 1:51 pm

    Rory and Amy get married and adopt a child. Rose goes back to school and becomes a family lawyer.

    Amy decides to divorce Rory, and Rose takes on her first case.

    Amy, who has never earned much, is awarded alimony for life and also child support as well as sole custody of the child, per her claim that Rory was abusive.

    Amy, knowing little about finances, hires Paul, an astute, successful, but lonely financial planner, to manage her windfall.

    Their relationship blooms like MA stock in the months that follow, and Paul ends his bachelor days at last.

    Amy also divorces him 7 years later, and again, with Rose’s coaching and representation, secures an even more comfortable income stream for her retirement. Amy celebrates by adopting three fortunate felines.

    Rory cashes out his meager TFSA and RRSP to help manage his alimony and child support payments.

    Through the “universal recession” of 2021, Paul witnesses the value of both his personal bond and stock investments plummet; his clients flee to cash and bitcoin. Unable to retire, he gets a job as Wal Mart greeter to manage his own payments.

    Amy helps out by paying Paul and Rory a modest sitting fee as they take turns looking after her cats as she snowbirds in the Bahamas each winter. Paul and Rory pool the money and buy lottery tickets, hoping to win something to buy an annuity.

    …..she sends lovely postcards to Rory, Paul and Rose.

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