Women's Wealth Canada
Women's Wealth Canada
Protect Your Retirement Savings from Inflation with These 5 Steps
In this episode of the Women’s Wealth Canada Podcast, host Glory Gray breaks down 5 Steps to Protect Your Retirement Savings from Inflation, helping you safeguard your financial future in uncertain times.
Drawing from her extensive expertise, Glory simplifies the complexities of inflation and its impact on your savings. She shares practical strategies to adjust your spending, optimize your investments, and maintain financial stability—even in a high-inflation environment.
From understanding how inflation affects daily expenses to navigating market changes with confidence, this episode is packed with actionable tips to help you thrive in your retirement journey.
Whether you’re nearing retirement or already enjoying it, tune in for expert insights and real-life examples that will empower you to protect your wealth and plan for tomorrow with clarity.
Hosted by Glory Gray
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Glory Gray
Hi, everyone, I’m Glory Gray and welcome to the Women’s Wealth Canada podcast.
You may have heard that when you're planning your retirement, it's important to take inflation into account. What does that really mean and what should you do about it?
We’re going to dive into the answer to that question today, but first, I wanted to let you know that we have a new resource for you on the website.
My friend, Anna Harvey and I have just concluded a Webinar called “Building a Rich Retirement: The Social Network Equation.”
Are you really ready for your best retirement? Or do you only have an idea? In this webinar, we’ll help you focus on what truly matters in retirement. You may be surprised to find out the answer! We also talk about some financial strategies to help you create a worry-free future. Plus, you’ll get two free planning guides instantly when you sign up! I’ll leave a link in the show notes below.
Back to our topic. Here are 5 steps to protect your retirement savings from the effects of inflation.
1. Understand what inflation really means
Media headlines are always meant to create an emotional response in us, so let’s first understand what inflation means. In economist jargon, what we call “the inflation rate” is officially called the Consumer Price Index (CPI). Every month, Statistics Canada looks at a specific basket of stuff that Canadians purchase in their daily lives. Items such as food, housing, health care, and gasoline. Today’s prices are compared to another period of time, such as last month or last year. They subtract the difference between the prices in the two periods, sprinkle a little mathematical dust and voilà, we have the change in the CPI, or the rate of inflation.
If the annual inflation rate is 3%, an item that cost you $10.00 twelve months ago costs you $10.30 today.
Sometimes we get confused when we hear politicians talk about how inflation is lower than it was, but when we look at prices, we see crazy high prices and figure they must be lying to us.
What they’re saying is that the rate of inflation from year to year has slowed down. They don’t mean that today’s prices are lower than they were five years ago.
Think of it this way: Let’s say I’m trying to watch my weight. I may start at 130 pounds. The next year I gain 10 pounds. That’s a lot, that is 7.5%. The next year, I gain 5 pounds. That's better, that’s less. That’s only about 4 percent. The speed at which I’m gaining weight has slowed down. But the reality is, after those two years, I weigh 145 pounds, 15 more pounds than I did the first year. The rate of my weight gain is slowing down, yay, me, but I still have gained too much weight.
That’s the difference between the rate of growth and the total amount over time. Prices only grew 1.9% in 2024, compared to 6.8% in 2022. That’s good. But the cumulative effect over the past few years is that prices are much higher now than they were in 2021.
2. Understand how inflation will affect YOU
If inflation has grown 5% since last year, then something that cost $10.00 last year costs $10.50 today. That means, if you make no other changes, you will be spending more money this year, right?
Let’s say Mallika spent $50,000 on her household expenses last year. If the rate of inflation is 5%, that means she will spend $52,500 this year on the same things, because ($50,000 X 5%) + $50,000=$52,500.
Is she able to spend that with no concerns? Then she should go forth and carry on. Truly, why worry and frustrate yourself over something you have no control over? This kind of inflation creates heartburn for federal governments and their central banks. Believe me, they want high inflation to not last longer than a year or two at most and will do everything in their power to make it go away as fast as possible so we can all get back to a lower inflation rate, if for no other reason than their own political self interests. If Mallika can afford it, she should go enjoy your life.
For many people, though, bumping up their expenses by 5% is not an option. So, let’s look at some practical solutions.
3. Adjust your Mindful Spending Plan
You may not be able to control all of your purchases, but you can adjust some. What can you change? What can you do without? Make a game of it with your family! Use this time to try something new.
Go plant-based
I was speaking with a young mother who had a child with cerebral palsy. She and her spouse decided it was best if she stayed home full time so she could devote her time to their child’s healthcare needs.
This impacted their household income, as you can imagine. Because meat was so expensive, she tried stretching it across several meals. She quickly learned that a pound of beans would provide all the nutrition and protein of a pound of meat at a fraction of the cost.
There are a variety of plant-based products and recipes available these days. Try one meal. You may be pleasantly surprised not only how much you’ll save but also how much you enjoy them.
Join the “buy nothing” crowd
Trying out a new hobby? Search out groups on Social Media that encourage swapping to get the new tools you’ll need without spending money. Our neighbourhood has a “Buy Nothing” group where people post items they don’t need anymore and other neighbours arrange to pick it up for free or trade it for another item. Another group I belong to swaps puzzles.
Need new clothes for work? Try consignment and thrift stores. If you’re lucky enough to wear the same size as a friend, shop their closet! Or, shop your own closet and put together items you don’t normally wear together.
4. Understand how inflation affects investment markets
Stock markets
Why do the prices of stocks tend to go down when inflation rates go up?
Expectations
The future value of a stock is affected by the price it is today and the future earnings potential of the company behind that stock.
If we expect the company will earn less money in the future, we expect it to be worth less in the future. If we expect it to be worth less, then we’re not willing to pay as much for it in the future as we are today. So, investors buying that stock begin to offer lower prices for that stock and the stock price drops.
Expenses
Inflation raises the future expenses of companies just like it raises our future household expenses. If it costs more to run a company, then their future profit will be less, all else being equal. Again, less profit could mean a lower future stock price.
Plus, inflation affects interest rates. Interest rates affect the rate at which companies can borrow money. Therefore, inflation has a disproportionate effect on smaller companies than larger companies, because smaller companies likely need more debt in order to grow than a larger company. During times of high inflation, stocks of large companies with lots of cash and low debt do better than stocks of small companies with little cash and large debt loads.
Fixed income (bonds, GICs): The Seesaw Effect
That’s what happens to stocks. What about bonds?
Bonds are loans you give to companies. You can buy and sell these loans–these bonds– in the market.
Here’s the key point to remember about bonds:
When Interest Rates Go Up, Bond Prices Go Down
When Interest Rates Go Down, Bond Prices Go Up
This means that the value of bonds you hold today will be worth less tomorrow if interest rates go up. The price someone will pay you for that bond will be less tomorrow if interest rates go up.
Now, there are definitely exceptions to this, such as we saw during the pandemic and its aftermath, but it's a theory to keep in mind.
Interest rates very often rise if inflation is rising. There are market forces and government policy reasons behind why this is so.
In the short term, the value of bonds will go down when interest rates rise.
The Good News
On the flip side, if stock prices are going down, investors will sell their stocks and need somewhere to put their money. They can only hold cash for so long. So, they often invest in bonds. This causes bond prices to rise because of demand.
Eventually, higher interest rates will be a good thing for savers, because they will earn more on their bonds or savings accounts or GICs.
So, bonds can be a mixed bag when it comes to inflation.
5. Understand how inflation can affect your own investments
If you’re not retired
If you do not expect to be withdrawing money from your investments for the next few years, stay the course with your long term investment plan and let your money do the work for you. In the long run, you will come out ahead, even if markets produce a negative return this year.
If you’re retired
When you’re retired, you are withdrawing money from your investments to provide an income for yourself. You have to take less risk for at least part of your portfolio, because you’re relying on it to be there when you need to withdraw it. For you, having fixed-income investments as a large part of your portfolio may be necessary.
Rubin and Denise’s Story
Here’s a story that might bring it all together for you. Rubin and Denise were about to retire when they first came to my office. They had always been frugal and managed to save up a good nest egg for their golden years. But when talk of inflation began to appear, they worried it would have a serious impact on their retirement planning.
They weren't sure what to do. They had to either stretch their savings even further or find another way to make up the difference.
But, they didn't want to do anything too drastic. They still wanted to enjoy their retirement! We sat down together and started brainstorming and came up with a few ideas.
Rubin was an IT professional who used to work in an office building but started working out of his home a year ago. He loved his work, but since Denise was retiring, he wanted to be free to travel with her. He approached his company and offered to be a consultant working on projects on an as-needed basis after he retired as an employee. His company was thrilled with the idea. Now he works from anywhere and has no set hours as long as he completes the work needed.
Since Rubin was still working, he chose to delay receiving his CPP benefits. For each year he delays receiving CPP beyond age 65, he'll receive 8.4% more money when he starts receiving his payments.
That means if he waits till age 70, he'll get 42% more money than if he decided to start taking payments at age 65. That's like receiving a guaranteed return of 8.4% every year!
Rubin and Denise spent some time envisioning how they would spend their days in retirement. They soon realized they weren't going to need half the household items they owned.
One of the biggest items was their car. With Rubin working at home and their desire to do things together, they didn't need two cars. So, they sold one of their cars and replaced it with an electric bike.
Now, if Rubin wants to meet friends or go to the store while Denise is out running errands, he straps on his helmet and heads out.
These simple changes, along with careful investment planning, gave Rubin and Denise the freedom and security they needed to start their new life.
The bottom line
Remember that headlines are meant to grab your attention. Take them with a grain of salt. Look at the real data for yourself. Understand what it means for you. Then take action as needed.
Money does not just disappear. Money is always in motion. All market conditions provide opportunities as well as challenges.
But we can’t predict what type of investment will make money at any one time. That’s why we need to be invested in different things all the time. That’s what we refer to as a “diversified portfolio.” A little of this, a little of that.
That way, when inflation comes, when recession comes, when unexpected events come, you can weather the storm.
Are you worried about the future of your investments?
At Glory Gray Wealth Solutions, we offer portfolio management and financial planning to Canadian investors. I've been in the finance industry for over 20 years and can help you manage your money so that it’s working harder than ever before!
You don’t need to worry about inflation because we take a holistic approach to managing your portfolio that helps you weather the downs cycles and take advantage of the up cycles. We will handle all your investment needs, while you focus on what matters most – growing your business, enjoying your retirement, or spending time with family and friends.
I'm Glory Gray, your personal trainer for financial fitness telling you to take charge of your finances, plan for the future but most of all, enjoy today. Bye for now.
Announcer:
This podcast is for informational purposes only and should not be construed as investment, tax or legal advice. It is not an offer to sell or buy or an endorsement, recommendation or sponsorship of any entity or security cited. Mutual funds offered through Portfolio Strategies Corporation. Other products and services provided through Glory Gray Wealth Solutions.
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Watch the webinar: Building a Rich Retirement: The Social Network Equation
https://www.glorygray.com/rich-retirement-webinar
