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My advice • January 08, 2024
modified on June 19, 2024

Inflation: how it’s impacting your retirement

Strategies that could help to keep your retirement goals on track, despite inflation

photo de Koffi Gbeglo Koffi Gbeglo, Lead Advisor, Advice Development at Laurentian Bank
Inflation 101

Inflation is the cause of constantly increasing prices for essential goods and services like groceries, housing, and transportation.

You’ve probably noticed how everything keeps getting more and more expensive, and one of the main culprits is inflation. But what does this mean for you, in concrete terms? Laurentian Bank’s Lead Advisor, Advice Development, Koffi Gbeglo breaks down its impact on your day-to-day life: “Whether you’re just getting your career started or you’re embarking on Day 1 of retirement, inflation can chip away at your ability to save, your personal finances, and your retirement goals.”

Fortunately, your Laurentian Bank advisor can help you understand how inflation may be impacting your retirement savings—then guide you in revising or implementing a tailored strategy to help keep you on the path of financial well-being.

How inflation can affect your finances

Inflationary prices lead to Canadians shelling out more for essential goods and services. When your income increases in step with the rate of inflation, you’re generally better equipped to face the challenges of a higher cost of living. However, when your salary doesn’t grow as quickly as inflation, your purchasing power plummets. Basically, you can’t buy as much as you could last year, even if you’ve been saving.

If the latter is the case for you, it can be difficult to remain optimistic about the future, and you might feel tempted to put your goals on the backburner. But don’t give up: you may not be able to control inflation, but you can cushion its blow to your finances and keep your goals front and center.

This would be a good time to have a fresh look at your budget and review your priorities to make sure they’re in alignment with your current financial situation. Doing so is a great way to see how you’re really spending your money and, where possible, to rein it in.

Reducing the impact of inflation on your retirement

If you’re already retired or it’s still on the horizon, why should you start caring about the long-term effects on your retirement now? In either situation, inflation will have an impact. As time passes, you’ll need an increasing amount of money just to live, and with life spans getting longer and longer, there’s more time on the clock and therefore more funds required. That’s why it’s so important to plan for retirement with an advisor and find out how much you’ll need to enjoy your dream retirement—as well as what kind of income you can expect.

Although today’s uncertain economy and volatile markets are raising alarm bells for many, investing your money could be a good way to make sure you’re not short on savings when it comes time to retire.

So, do you have the right investment strategy in place to shield you from inflation and keep your retirement plans on track? There are as many investment options as there are investor profiles. Your advisor’s job is to help you choose the ones that are right for you based on how much you can save, your priorities, and your long-term financial goals.

Tailor your investment strategy to limit the effects of inflation

Historically, diversified portfolios have had the best record of curbing the effects of inflation over the long term. That said, there may be a tendency to invest in safer options during uncertain times. For example, Guaranteed Investment Certificates (GICs) deliver guaranteed returns, but did you know that investing in them can reduce your earning power if their interest rates are lower than the rate of inflation?

Some GICs do have rates that perform well against inflation. For example, as of November 21, 2023, Laurentian Bank was offering GICs at 5.40%1 for 1 year, while the inflation rate in October 2023 was 3.1%2 year-over-year (Bank of Canada update, November 21, 2023). This means that, in the short term, investing in GICs could be an opportunity, as they can compare favorably with the previous year's inflation. But you may find that GICs like this are not always available.

From RRSPs to TFSAs, there’s a comprehensive offering of investment products out there—including mutual funds, GICs, and ActionGICs—that could be the right fit for your needs, and your long-term financial goals. A solid, diversified investment strategy tailored to your investor profile could help protect you from the long-term impacts of inflation.

Your Laurentian Bank advisor is here to help you prosper with custom advice and an investment strategy built on your investment profile, and financial goals. Your dream retirement starts here.

Meet with your advisor, click here.

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