Beating Inflation in Retirement Starts with a Plan

Simon Barcelon


20 Jan 2022


3 min read

“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” -Sam Ewing

There has been a lot of talk around inflation over the past year, and how the constraints and restrictions placed by COVID-19 have completely disrupted supply chains around the world. It’s no surprise, as you can easily see inflation’s impact on your everyday life: a simple trip to the grocery store had me scratching my head wondering why fresh oxtail now goes for $10 per pound when prior to the pandemic it was roughly $7 to $8⁠—that’s an increase of 25% to 40%!

To be fair, not all groceries have jumped that much in price: on average, they rose roughly 5.7% as of December 2021, while other goods and services like gasoline soared by over 33% on a year-over-year basis.¹

And although the timeframe for how long these levels of inflation will last and when prices will begin to normalize is blurred, it is clear that these times have been a strain on many Canadians, leaving many – especially those entering retirement – concerned about their future.

More than half of Canadian pre-retirees are worried about how inflation might affect their retirement.² The good news is there are ways investors can protect their long-term financial goals from the negative effects of inflation, and it all begins with a plan.

Key Takeaways

  • The inflation rate in December 2021 was 4.8%, which is the highest it’s been in 30 years. ³

  • More than half of Canadian pre-retirees are worried about how inflation will affect their retirement.

  • 91% of pre-retirees with a plan have a positive outlook on their retirement.²

Inflation impacts your purchasing power

Before we dive into how to prep yourself to thump inflation during retirement, let’s take a step back and understand why it’s so important. Prior to the pandemic, the 20-year average annual inflation rate in Canada was 1.8%: the lowest annual rate, 0.3%, was in 2009 during the financial crisis, and the highest rate, 2.9%, followed its recovery in 2011. In comparison, the inflation rate in December 2021 was 4.8%, which is the highest it’s been in 30 years.

This increase in inflation can be life-changing over the long term as an individual’s purchasing power is directly affected by the increased cost of these goods and services. This problem is exacerbated for most Canadians in retirement or nearing retirement as their ability to build their savings has significantly reduced.

Let’s look at a simple example: Assume the value of a good that you consume today costs $1,000, and the rate of inflation is 2%. In 20 years, that same item will cost you $1,486. That’s certainly a big change. But what if, instead of 2%, annual inflation was at 3.5%? That same item in 20 years would cost you $1,990—almost double its price today! Clearly, even a small increase in inflation can make a large difference in the cost of a good over the long term and impact the real value of your portfolio.

Inflation's Impact on Purchasing Power in Retirement

Beating inflation in retirement

While no one can directly affect the inflation rate, there are certainly things Canadians can do to tackle it head on and prepare for it in retirement.

It all starts with having a written financial plan. A recent study showed that only 25% of pre-retirees in Canada have a written plan for retirement. These plans can include your investments, the sources of income you will receive, and a budget for spending that is adjusted for inflation.

The financial plan can also outline what type of lifestyle and activities you plan to tackle and include additional funds to set aside for unexpected events. But the impact of having a plan is clear: 91% of pre-retirees with a plan have a positive outlook on retirement.

Once you have your financial plan, you can adjust it to ensure that you maintain your purchasing power. This includes saving a bit more or spending a bit less on non-essential luxury items or targeting a higher rate of return on your portfolio. Certain investments, such as real assets, which include real estate, commodities, real return bonds, and infrastructure, have a higher correlation to inflation than traditional stocks and bonds and so act as inflation protectors. Including a diversified set of these investments within your portfolio can help hedge against inflation and keep you on track with your retirement goals.

Inflation also poses the largest risk for those who live longer, as its effects compound over time. The Longevity Pension Fund (LPF) is uniquely positioned to provide monthly income for life that is designed to increase its payments over time.* The LPF also includes exposure to Real Assets by investing some of its assets in the Purpose Diversified Real Asset Fund, making it a strong option to include as part of your retirement portfolio. By securing income that will last as long as they do, retirees can help ensure they will be able to afford the things they need (and want) in retirement – even if they cost a little more down the road!

For more information on the Longevity Pension Fund, or for help building a financial plan, visit our Retirement Planning page to learn more or book a call with our financial planner to get you started.

[1] Canada's inflation rate rises to new 30-year high of 4.8%, CBC News:

[2] Canadians Resilient and Optimistic About Retirement Despite Inflation and Pandemic, Fidelity Investments:

[3] Canadian Inflation Rates: 1990 to 2022, Rate Inflation,

 [4] The 2021 Fidelity Retirement Report, Helping Canadians think about retirement

*The Fund has a unique mutual fund structure. Income in the form of Fund distributions is not guaranteed, and the frequency and amount of distributions may increase or decrease. Most mutual funds redeem at their associated Net Asset Value (NAV). In contrast, redemptions in the decumulation class of the Fund (whether voluntary or at death) will occur at the lesser of NAV or the initial investment amount less any distributions received. You can always access the lesser of unpaid capital (initial value of your investment less any income payments made) or your net asset value. Fees may apply.

Commissions, trailing commissions, management fees and expenses all may be associated with the Longevity Pension Fund. This communication is not investment advice, nor is it tailored to the needs or circumstances of any specific investor. Talk to your investment advisor to determine if the Longevity Pension Fund is suitable for you and always read the prospectus before investing. There can be no assurance that the full amount of your investment in a fund will be returned to you. Investments in the Fund are not guaranteed, investment values in the Fund change frequently and past performance may not be repeated.

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