Protecting your retirement nest egg from inflation

We’ve been hearing a lot about inflation lately as the high cost of food, gas and other essentials makes life more expensive. But even lower rates of inflation can impact your retirement nest egg.

How? Even when inflation is within the desired two per cent range, that can whittle away at your savings if your investments are earning less, explains Aquiles Rosales, Investment Advisor, Credential Securities, Prospera Insurance Agencies Ltd. in Agassiz.

Over time, this reduces the purchasing power of your retirement savings, which in turn can impact your standard of living.

“The main thing you need to pay attention to is whether the rate of return on your investments is at least matching inflation,” Rosales says.

One of the biggest pitfalls he sees is people relying too heavily on term deposits, whose lower returns leave savings vulnerable to the eroding effects of inflation.

“People are trying to avoid risk and don’t want to see fluctuations in their portfolio, however term deposits are really designed for short-term investments – typically in the three to six-month range, to a maximum of two to three years,” Rosales says.

Instead, think diversification. As with the wealth-building stage of life, diversification in retirement can create higher rates of return and reduce risk associated with most investments in a single area. This also guards against inflation’s impact on specific assets.

“It’s important to diversify. I wouldn’t recommend putting all their money into mutual funds and wouldn’t recommend putting it all into term deposits,” Rosales says.

However, he adds, options like mutual funds also come at various risk levels, including those appropriate for more risk-averse investors. Rosales also likes the option of real estate investment trusts, especially here in B.C.

Of course, more money coming in isn’t the only way to make your retirement nest egg go farther.

Since people often earn less in retirement when they’re working, it’s important to adjust spending habits and prioritize essential expenses to counteract the effects of rising prices on your retirement budget, Rosales notes.

READ MORE: Understanding CPP and OAS: Maximizing benefits for retirees

READ MORE: 3 ways to use a TFSA in retirement

No matter what stage you’re at in your investing, it’s essential to incorporate inflation expectations into your retirement planning. Speaking to an advisor when developing and maintaining your retirement savings helps ensure your financial strategy remains resilient and sustainable and can help maintain your standard of living, no matter what inflation brings.

For a free, one-on-one investment review, Rosales invites you to drop by the Agassiz Prospera branch from 9:30 a.m. to 5 p.m. weekdays, or Saturdays until 3 p.m., or email

Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Prospera Insurance Agencies Ltd. provides life, disability, and critical illness insurance, annuities, and full business solutions such as group benefit plans, succession planning, and business owner insurance.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual funds, other securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. Mutual funds and other securities are not guaranteed, their values change frequently and past performance may not be repeated.

Leave a Reply

Your email address will not be published. Required fields are marked *