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The Silent Wealth Destroyer
Inflation is the gradual increase in prices over time. While 2-3% annual inflation seems modest, it compounds powerfully. At 3% inflation, your purchasing power halves in about 24 years.
For retirees potentially living 25-30 years in retirement, inflation poses a serious threat to long-term financial security.
How Inflation Affects Retirees
- Fixed income sources lose real value over time
- Healthcare costs often rise faster than general inflation
- Long-term care expenses compound the problem
- Purchasing power erodes even with 'safe' investments
- GIC returns may not keep pace with rising prices
Investments That Help Combat Inflation
Stocks and Equity ETFs
Over long periods, stocks have historically outpaced inflation. Companies can raise prices along with inflation, protecting their real earnings and your investment value.
Real Estate and REITs
Property values and rents tend to rise with inflation, making real estate a traditional inflation hedge.
Real Return Bonds
Government of Canada Real Return Bonds adjust with inflation, protecting your principal's purchasing power. Available through ETFs like XRB.
Dividend Growth Stocks
Companies that consistently raise dividends help your income keep pace with rising costs.
Built-In Inflation Protection
Some retirement income sources have built-in inflation adjustments:
- CPP/OAS — Indexed to inflation annually
- Some defined benefit pensions — May include COLA adjustments
- Real return bonds — Adjust with CPI
💡 Note: CPP and OAS indexing makes them incredibly valuable. Delaying these benefits increases the inflation-protected portion of your income.
Practical Strategies
- Maintain equity exposure even in retirement
- Consider dividend-growth investments
- Don't over-allocate to cash or GICs
- Plan for expenses to increase over time
- Review your portfolio annually for inflation protection
The Bottom Line
Ignoring inflation is one of the biggest retirement planning mistakes. Build a portfolio with assets that can grow faster than inflation, and plan your withdrawal strategy assuming costs will rise significantly over your retirement.
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About Maple Wealth Guide
Maple Wealth Guide is an independent Canadian financial education website. Our team of educational writers researches and explains investment concepts, retirement-related topics, and personal finance information for Canadians aged 50 and over. We are not licensed financial advisors and do not provide personalized recommendations. All content is for educational purposes only.