Oct 18: BEST FROM THE BLOGOSPHERE

October 18, 2021

Retirees and savers take note – inflation appears to be on the rise

An article in Castanet from Kelowna, B.C., warns us all that inflation appears to be making a comeback.

The article begins by noting that inflation is at its “highest level in 18 years,” and that continued high levels of spending by government could drive it even higher.

Inflation, the article explains, “is the general increase in prices and the fall of the purchasing power of a dollar. Put another way, it refers to the cost of putting gas in your car or buying groceries increasing.”

While no one can exactly predict how and when inflation will increase, your retirement plan should be prepared for action, Castanet reports.

Even modest-sounding inflation of three per cent “can cut the purchasing power of your money in half over a 20-year period,” the article notes. This is especially concerning if your income sources are not “indexed,” which means inflation-protected, or if your income sources are not growing, the article adds.

One good thing to be aware of, the article states, is that your government retirement income is inflation protected. So sources of income like the Canada Pension Plan and Old Age Security will be adjusted upwards if inflation is running higher.

If you have a pension plan at work, it may offer inflation protection – find out, and select this option if such a selection is required, Castanet advises.

If you are investing for retirement, the article advises a balanced approach. A portfolio that is completely risk-free – invested in Guaranteed Income Certificates (GICs) – can actually decrease in value in the inflation rate outpaces the GIC interest rate.

“Often, those that want no risk would be far better served by investing in a conservative portfolio that still holds some equity or other alternative investments that will offer a certain amount of inflation protection. These riskier assets can of course lose money as well, so it is imperative that the investor fully understands the plan they are putting in place,” the article explains.

“You may also want to consider investments in sectors that benefit from inflation like real estate and commodities,” Castanet adds.

The article also mentions real-return bonds as a sort of “hedge” against inflation.

Be prepared for inflation, the article concludes, or face “disastrous consequences.” Consider reviewing your plans with an advisor, the article suggests.

Did you know that the Saskatchewan Pension Plan’s Balanced Fund provides an easy way to ensure all your retirement eggs aren’t in one potentially inflation-sensitive basket? The fund is invested in Canadian, U.S. and Non-North American equity, but also bonds, mortgages, real-estate, short-term investments and infrastructure. That diversification has led to an average rate of return of eight per cent throughout the 35-year history of SPP. And while past results don’t guarantee future returns, it’s a pretty nice track record of helping build retirement futures! Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Canada Pension Plan, Castanet, CPP, GIC, Guaranteed Income Certificates, Kelowna, OAS, Old Age Security

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