When you’re planning for retirement, you need to take into account the impact of inflation, which is the general increase in prices and fall in the purchasing value of money.
In other words, you’ll want to think about the rising cost of consumer goods and services in Canada 10, 20, 30+ years from now when you enter retirement age.
The average rate of inflation in Canada recently has been 2% per year, which means that the cost of goods and services has been rising by 2% every year. This number is calculated by using what is called the “consumer price index” (CPI), which tracks the pricing changes of a broad range of over 600 consumer goods.
Why does this matter?
Public pensions (such as the Old Age Security (OAS) pension and Canada Pension Plan) are protected against inflation, so if the cost of living goes up, the value of benefit payments also goes up.
However, some employer pensions are not protected against inflation. You’ll want to check with your pension administrator to see if yours is or not.
Personal savings, mutual funds, and guaranteed investment certificates (GICs), are also usually not protected against inflation, which means that you’ll need those investments to grow by at least the rate of inflation, otherwise the amount of things that money can buy in the future will be less than what they can buy now (it loses buying power).
Bruce Youngblud is a known pension expert in southern Ontario who specializes in helping individuals prepare for retirement. He advises clients on Canada pension plans, auto worker pensions, government pensions, tax planning, and estate planning. Call us at 1-888-554-6661 for a free consultation to analyze and discuss your pension options.You may also like...
