Inflation in Retirement

[vc_row css=”.vc_custom_1612380408194{padding-top: 20px !important;padding-bottom: 20px !important;}”][vc_column][vc_video link=”–fo” css=”.vc_custom_1699033131493{padding-top: 20px !important;padding-bottom: 20px !important;}”][vc_column_text css=”.vc_custom_1699033963122{padding-top: 20px !important;padding-bottom: 20px !important;}”]In the realm of retirement planning, a hidden danger lurks, quietly eroding the foundation of your financial security: inflation.

Today, we’ll dig into the impact of inflation in retirement and explore how to build a plan that guards against its silent threat.


Unmasking Inflation

Inflation is the gradual increase in the price of goods and services over time. The Bank of Canada’s target inflation rate is 2%, meaning that a product worth $100 today should cost $102 next year. While this may seem modest, a recent graph (in video above) shows inflation rates surging past 8% in 2022, exceeding the target significantly. This has likely been felt in your daily expenses, from groceries to housing costs.


Inflation’s Quiet Assault

Over the Years Over the past 25 years, inflation has steadily chipped away at our purchasing power, typically ranging between 0-4%. It’s this silent, relentless erosion that makes inflation in retirement a potential killer. Even without dramatic spikes, inflation gradually eats into your spending power.


Planning to Outsmart Inflation

Incorporating inflation into your retirement plan is vital. When planning for an extended retirement, it’s essential to consider how your purchasing power will diminish over time. Certified Financial Planners adhere to guidelines that suggest a minimum inflation target of 2.1% in 2023. These guidelines ensure that your plan remains realistic as the cost of living evolves.

To illustrate this, we examined the retirement plan of Mr. & Mrs. Inflation, based on a 2.1% inflation assumption. If inflation were just 1% higher throughout their retirement, their plan’s funding level dropped by a staggering 27%, forcing them to tap into their home equity earlier to maintain their lifestyle. This scenario underscores the importance of revisiting and updating your retirement plan yearly to adapt to changing economic conditions.

Conclusion: While retirees often focus on portfolio performance, it’s the stealthy impact of inflation that poses a more significant threat to retirement funding. The lesson is clear: when building a retirement plan, always account for inflation assumptions and keep your plan up to date.

To explore more retirement tips, consult our 20 Retirement Tip Guide.


A Personalized Approach to Retirement Planning

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Marc Sabourin is a Winnipeg-based Financial Advisor and Retirement Specialist with Harbourfront Wealth Management. His specialty is working with pre-retirees and retirees who are looking for retirement, investment, & tax advice. 

Disclaimer: The views expressed are those of Marc Sabourin, Certified Financial Planner, and Investment Advisor, and not necessarily those of Harbourfront Wealth Management Inc., a member of the Canadian Investor Protection Fund

20 Retirement Tips

When entering retirement or having recently retired, these 20 tips should be considered. A thorough retirement plan will touch on all 20.

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