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Why is inflation a risk to my retirement income?

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Compliant content provided by Adviceon® Media for educational purposes only.


Statistics Canada releases inflation figures regularly to determine the health of the Canadian economy. Increasing inflation indicates that the economy’s overall prices are rising. This means there is good economic growth pushing these numbers higher. Some inflation is necessary to a vigorous economy. You do not want to over control it by raising interest rates too swiftly, yet some management of inflation helps to keep the costs of goods and services in check.

Historic inflation numbers show that Canada’s annual inflation rate is an average of 3%. Fast increases in the index percentile can spark the Bank of Canada to raise our interest rates as they began to do in 2017-2018. This was largely due to an aggressive bull market and home prices skyrocketing.

The cost of our basic retirement needs will increase.

When you go to the pumps or to the grocery store, ask yourself, “will my retirement investment portfolio create sufficient income to pay for all these rising expenses?” Only by accumulating assets in your pre-retirement years, will you be able to increase your net worth, which can lead you to financial independence.

Investing to beat Inflation is a constant battle.

The importance of the economic fact of inflation may not be obvious. “What does the fish know about the water in which it swims?” asked Albert Einstein. Over the years, inflation radically reduces our buying power. Interest rates when increasing as a policy to combat (reduce) inflation also increases our debt repayment load as a percentage of income putting a strain on our budgets. In this respect, both inflation and interest on debt are the foremost enemies of wealth creation. The following table shows just what inflation can do to your investment income when needed at retirement.

You can get ahead of inflation now by investing.

A healthy investment fund portfolio can give you a sense of financial security, earned by continued discipline and adherence to the principle of saving, which adds to our sense of personal dignity.

Saving on a month to month basis while purchasing investment fund units can help you realize your goals and objectives in life (such as acquiring a home, making major purchases, travelling, putting children through college or university, or going back to school yourself). Finally, your investments must outpace inflation—the rising cost of goods and services—the investor’s worst future enemy. Ask your financial specialist to do a complete analysis of your retirement income potential.

 


 

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