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How Inflation Impacts Your Retirement Plan

“Just surviving day to day has become a big concern of mine”, “Yes, I can afford what I’m doing right now, but I’m starting to panic. I’m starting to think, ‘How am I going to keep paying for everything?”

 Morgan – 65 years old retiree.

In a survey done in April of 2022 for 1001 Canadians, data indicated that due to inflation, 54% of households are cutting back on dining out, 51% looking at flyers are looking for sales, and nearly half ^47%) are putting off purchases like clothing. Some households are struggling to pay the bills right away or their debts are getting bigger while for some others, they may be able to manage but not save for the future and especially for their retirement.

Understanding how inflation would hurt our retirement strategy is a must to ensure that we have enough assets to rely on and last through our retiring years.


Defining Inflation
In simple terms, inflation is the devaluing of buying power of a currency. It occurs over time as the government pumps more money into the economy. Essentially, inflation means that there is more money supply buying to a relatively fixed amount of stuff. This results in rising wages and prices over time which causes a reduction in the purchasing power of people, not allowing them to live the same lifestyle as they used to, only a few months back. As we try to understand inflation, let’s dig deep into the root causes of it.

Inflation could occur because of:

  • Cost-push Inflation
  • Increased demand over supply
  • Government printing money (to simulate economy during bad times – Ex; COVID-19)

Regardless of the cause, the problem remains the same; inflation will impact our retirement dollars just as it is impacting our dollar worth today (and if not worse).

The sad reality is that the consequences of inflation are not experienced equally across the income spectrum.

For low-income workers and those on fixed income support (ex: retiree), inflation can be catastrophic.
Inflation is always and everywhere more than simply an increase in prices; it’s fundamentally a conflict over the distribution of income and wealth.

There is no escape from this reality!

Continue to read the rest of the newsletter and let us help you understand how inflation can impact your retirement savings and what you can do to mitigate its risk.

The Impact of Inflation on Retiree

While inflation impacts everyone, retirees and pre-retirees can especially feel the effects when the money they are relying on to live comfortably for 20 or 30 years suddenly is not so secure. They would be very worried and fear that they are running out of money especially since their income is fixed meanwhile all living expenses are rising. This is concerning for Canadians that a recent statistic showed about half of Canadians, who are over 55 years of age, are planning to delay their retirement due to inflation and debt issues.

To explain how inflation impacts retiree life, lets first briefly list their potential sources of income during retirement:


  • Canadian Pension Plan (CPP)

Monthly payment to people who have contributed to their plans during their working years. The payment amount depends on how long you contributed to the plan and how much you contributed. You can choose to take your CPP as early as age 60 or as late as age 70.

  • Old Age Security Pension (OAS)

Monthly benefits for Canadians who are 65 of age or older. Working and non-working individuals can get OAS support (you don’t have to make a contribution). You can receive OAS at the age of 65 or choose to defer five years. Canadian citizens and legal residents are eligible for OAS with the condition that they have been in Canada for at least 10 years.

  • Guaranteed Income Supplement Pension (GIS)

Monthly non-taxable benefits to Old Age Security recipients who have low income and are living in Canada.

  • Employer-sponsored Retirement & Pension Plans

Benefits that you receive from your employer who sponsored you for retirement plans such as group Registered Retirement Saving Plan (RRSP) or Registered Pension Plan. Both, you and your employer, contribute to this plan.

  • Personal Retirement Savings & Investment

Sources of income that is made up of various savings or investment products such as Registered Retirement Saving Plan (RRSP) or Tax-Free Savings Account (TFSA). RRSP helps you grow your money while offering tax benefits. TFSA can also hold investment products and allow them to grow tax-free. This means you don’t have to pay tax on income from investments held in your TFS such as interest, capital gain, or dividends.

Regardless of your retirement income source, if it is set in your bank account and not growing (not generating a return), then it will inevitably devalue over time. For example, you save $1000 today, and in ten years, it’s only worth $800, and there is no way you can get those $200 back unless you change your retirement savings strategy.

Is there something you can do to control inflation rates? Not really.

Is there something you can do to grow your savings to outpace inflation? Yes, there is. That should be your strategy!

Controlling and managing inflation is not in the hand of the people, rather it falls to the Bank of Canada and whole economic regulations. However, what we can do, is mitigate the risk that is posing to our retirement savings. Continue to read the next section for some helpful recommndations.

What can you do to mitigate the risk of inflation on your savings?

1. Grow your retirement assets (invest!)

As we explained before, inflation hinders retiree purchasing power as the cost of everything rises faster than the pace of their asset/retirement income growth. If inflation rises by 10%, and your income increase by 3% only, then everything is 7% more expensive than before.

When savings are invested at higher rates (bonds, stocks, property), your savings worth is going up outpacing the inflation rates (plus extra bonces). Speak with your financial advisors for ways you can invest your money for a good return rate.

2. Factor inflation rates into your future savings 

Pre-retiree should do long-range planning correctly for their retirement, incorporating inflation rates in their retirement (future fixed income). Meaning that they should factor in the increase of an average of a 3% annually (as an example) into their savings and their expected spending levels when they retire.

3. Downsize or rent a portion of your home to generate side income

Selling your home and buying less expensive one can provide you with extra money in retirement. Not in favor of small living spaces? Then maybe you can free up some space in your home (ex: basement) and rent it for extra income that pays off your mortgage and allow you to have extra savings.

4. Speak to an expert financial advisor

Financial advisors can be a great resource of information and guidance. They have market experience dealing with rates, inflations, recessions, and investments. 

They can offer you advice on how you can factor inflation into your future savings, where to invest your money, and how you can grow your retirement funds with low or high risk and return, offering you peace of mind.

Contact our expert financial advisors here to help you plan early for your retiremnet and navigate through your investment options.

Even if inflation become nonexistent again soon, you still need a plan to account for it over your lifetime, so the doubt and uncertainty of your finances do not overwhelm you when another year like 2022 returns.

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