How to limit the impact of inflation on your retirement?

When inflation soars, so do prices. Consumers suddenly find themselves paying more for gas, groceries and many other goods and services. It hurts their wallets, puts the pinch on their purchasing power and seeds concern.


If you are approaching retirement, you may be more concerned as sudden spikes in inflation can have a serious impact on your plans.

How can inflation affect your retirement plans?

A sudden spike in inflation can have repercussions on your savings and investments, which you may be relying on to partially fund your retirement. As a result, you might find yourself wondering if you’ll really be able to go on a big trip, take up a new hobby or buy a second home to enjoy when you’ll reach retirement.

You may even consider postponing your retirement so that you can save more money for your retirement dreams. Don’t panic! Your first step should be to develop a personalized plan so that you can get a better sense of where you’re at. If you’ve already got one, you may need to update it.

How to minimize the impact of inflation on your retirement plans?

Develop a retirement plan with your advisor. A retirement plan will help you understand the different sources of income you can count on during retirement. And most importantly, it can help you determine your retirement goals and figure out how much you need to save.

By taking the time to carefully develop a retirement plan, you’ll come away better prepared to face periods of high inflation and other unexpected events with confidence. It will also make it easier for you to see what you can do to tweak your budget and protect your savings.

Already have a retirement plan? If so, you’re already ahead of the game in mitigating the potential effects of inflation on your retirement. A well-developed plan usually takes into account several possible scenarios based on market volatility, inflation and increasing life expectancy. As a result, you probably have a savings and investment strategy to deal with curveballs.

If you’re worried, take the opportunity to review your retirement plan with your advisor. They’ll help you take a step back, optimize your budget and even re-evaluate your insurance needs.

How can inflation affect your future retirement income?

When you reach the finish line on your career, you also stop collecting a salary from your employer. This is probably one of your biggest concerns.

When you stop working, you’ll need to draw on other sources of income to replace your salary. This is where your retirement income comes into play. With proper planning, you can have enough money to live comfortably for the rest of your days.

The three main types of retirement income are government pension plans, supplemental plans (like employer pension plans) and personal savings. It’s important to consider how inflation could affect each of these sources.

Government pension plans

Once you retire, you may have access to basic income through the Québec Pension Plan (QPP), Canada Pension Plan (CPP) and the Old Age Security (OAS) pension.

The good news is that the benefits paid by these plans are adjusted every year to keep up with inflation, through a process called indexing. This makes sure your purchasing power keeps pace with the cost of living.


So, to a certain extent, your benefits are protected against inflation. However, pension income is taxable and the indexing rate applied to your pension may be lower than the actual inflation rate.

How to minimize the impact of inflation on your government pensions?
Did you know that you can postpone the start date for collecting QPP, CPP and OAS payments?


Starting later is often a smart choice because your benefits can end up increasing more per year than the rate of inflation. This can help limit the effects of inflation.


For example, after age 65, Canada Pension Plan payments increase by 0.7% each month until you start collecting the benefits. The payments can increase up to a maximum of 42%, if you start at age 70.*

Supplemental Pension Plan

If you contribute to your employer’s pension plan, you may be wondering if that plan will keep up with inflation. Some plans aren’t indexed to inflation and others are only partially indexed.

How to minimize the impact of inflation on your supplemental pension plan?

First, check with your employer to find out whether the benefits paid by your supplemental pension plan are indexed to inflation. Then let your advisor know so that they can adjust your retirement plan accordingly.

Personal savings

Money invested in registered and non-registered vehicles grows over time. But the return can vary depending on the product you choose. We know the cost of living will go up, but there’s no guarantee that your savings and the interest they earn will increase at the same pace.

For example, if you hold a guaranteed investment that earns 3% interest at a time when the inflation rate is 2%, your actual return on that investment is 1%. Keep this calculation in mind when managing your investments and savings.

How to minimize the impact of inflation on your personal savings?

The first thing you need to do is to properly assess how much money you need to save in order to achieve your retirement goals and maintain your standard of living.


If you can, it’s a good idea to increase the amount you contribute to your registered retirement savings plan (RRSP) and/or tax-free savings account (TFSA). If you increase your savings rate every year, you may be able to offset the rising cost of living.


Be sure to take advantage of tax-sheltered plans! For example, when inflation is high, you might want to focus on contributing to your RRSP and reinvesting your potential tax refund. The added benefit of this strategy is that RRSP contributions are tax-deductible.


You may also want to consider converting some of your personal savings into an annuity so that you can collect a regular, fixed and indexed benefit. Desjardins is the only financial institution in Canada that offers responsible annuitie External link.


This link will open in a new window., which incorporate environmental, social and governance (ESG) factors into the selection and management of investments. That way, you can choose an annuity that reflects your values.

How can inflation affect your withdrawal plan?

Preparing a withdrawal plan is a critical step in deciding how to draw from your investments for retirement income. It involves determining how you can make the most of your savings while paying the least amount of tax possible, based on your needs and personal situation.


You should always factor inflation into your withdrawal plan. If inflation skyrockets, you may want to change how much you withdraw, depending on your needs. In some cases, you may need to increase your withdrawals in order to maintain your standard of living.


Knowing that any of these situations could arise, it’s important to choose flexible investments that let you make larger or smaller withdrawals if you need to.


How to minimize the impact of inflation on your withdrawal plan?

A well-diversified portfolio can add to your sources of income at retirement and provide a return that’s on par with the rate of inflation, thereby limiting the impact on your withdrawal plan.


Another wise move is to continue contributing to your savings even after you retire. By generating a return after your working years, you’ll probably be able to maintain your desired standard of living.


You may also contact your advisor to review your withdrawal plan and make adjustments if necessary. This way you can rest assured that the strategy you established still makes sense for you.


If you don’t have a withdrawal plan, your advisor can help you get started. They may refer you to other professionals, such as a tax specialist, if necessary.

Don’t let inflation upend your retirement plans!

As you approach retirement, it’s important to anticipate inflation and how it could affect your retirement plans, income and withdrawal strategy. Talk to your advisor. Together, you’ll be able to develop a winning strategy that allows you to retire with confidence and enjoy that next phase of your life.