The inflation rate that actually matters most in retirement

Good morning. Inflation can be one of the biggest worries when you’re planning for retirement. Watching prices rise while you’re living on a fixed income sounds like a recipe for stress. But what if it actually isn’t quite as scary as it seems? Let’s get into it.

What’s your personal inflation rate?

Canada’s latest inflation numbers may have made your heart rate tick up a little.

Inflation accelerated to its highest level in more than two years in May as price pressures linked to the conflict in Iran began showing up beyond the gas pump. Statistics Canada reported in late June that the annual inflation rate climbed to 3.2 per cent in May, up from 2.8 per cent in April and the highest headline reading since December, 2023.

Then, on Monday, the Bank of Canada’s quarterly business outlook survey reported that many businesses expect weaker sales and anticipate raising prices in the months ahead.

Most economists weren’t overly alarmed, noting that oil prices have already started to ease. Still, it’s easy to see why higher inflation can make retirees (and anyone planning for retirement) nervous. When the cost of groceries, utilities and other everyday expenses keeps climbing while your income stays relatively steady, it can feel like you’re constantly falling behind.

But a recent blog post by author Jordan Grumet flips this whole notion on its head. His argument is that your personal inflation rate is often much more within your control than the headline number suggests.

Just because prices are rising, it doesn’t mean your own spending has to rise at the same pace. In retirement, for example, you may no longer have commuting costs, you have more time to cook at home instead of eating out, and you can travel during the off-season when prices are lower.

“While society takes a massive hit from rising prices, your personal inflation rate will almost always track lower than the national average because you know how to adjust the levers of your life,” Grumet wrote.

The same idea applies before retirement, too. We can’t control inflation, but we can control many of the choices that determine how much it affects us. Staying flexible and paying attention to your spending can go a long way toward protecting your finances, no matter what inflation is doing.

What are some items you’re surprised you are underspending on in retirement? Let me know by emailing me at mraman@globeandmail.com.

The Calculator

$1,000

Amount the U.S. government will deposit into a new Trump Account for eligible newborns. The accounts, which recently launched, are custodial retirement-style investment accounts for children. The $1,000 seed contribution from the Treasury Department grows tax-deferred until it’s withdrawn.

In Canada: The closest thing is the Canada Learning Bond, which helps low-income families save for postsecondary education. It offers up to $2,000 through a child’s RESP, $500 upfront, then $100 a year until they’re 15.

The Retirement Receipt

A couple bought $770,000 townhouse without help from the Bank of Mom and Dad

The numbers: Julia, 29, and her husband, 27, earn about $160,000 a year. They put down $52,000 (6.75 per cent) on a $770,000 freehold townhouse in Pickering, Ont., after saving through RRSPs, TFSAs, FHSAs and cash accounts.

The situation: Although they had access to financial help from family, they chose to buy on their own. After being priced out of Toronto and delaying their purchase when mortgage rates were too high, they kept saving until they found a home that fit their budget and lifestyle.

Key takeaways: The couple maximized employer RRSP matching, automated savings and used multiple registered accounts to build their down payment. They also received nearly $9,600 back through their brokerage’s commission rebate, which almost completely covered their closing costs. Their advice to other first-time buyers: don’t rush, view plenty of homes and don’t get emotionally attached too early.

Best of the Rest

💳 Not all bank rewards programs are created equal. A new ranking of Canada’s biggest loyalty programs found that some points are far more valuable than others. If you’re collecting rewards, understanding how to earn and redeem them strategically could mean the difference between measly cash-back and a business-class flight.

💰 Health care spending keeps rising, but where is the money going? An analysis by Frederick Vettese, former chief actuary at Morneau Shepell, finds aging explains only about half of Canada’s increase in health care costs since 2005, with roughly $40-billion in additional spending this year tied to other factors that aren’t well understood.

💳 Buy now, pay later is no longer just for big-ticket purchases. More Canadians are using instalment loans to pay for groceries as food costs remain stubbornly high, a new survey by Koho shows.

💼 Retirees are becoming entrepreneurs. Starting a business later in life can supplement retirement income and keep you engaged, but experts caution against risking too much of your nest egg, and to make an exit plan (Paywalled).

Try This

👛 Your wallet might deserve a little paper money again. Cash won’t replace tap payments any time soon, but investment reporter David Berman outlines ways it can still win, such as getting you discounts and covering small purchases.