MSN readers are feeling pressured by inflation: Poll
Three quarters of MSN readers admit to feeling the pinch of rising prices. And the older you are, the higher the apprehension.
At least retirees' government retirement benefits and (if they’re lucky) pension plans will keep their purchasing power intact over time though.
However, warn many financial advisors, this isn’t necessarily the case.
“Many of my clients keep needing extra infusions of income, even though their private pension, Canada Pension Plan and old-age security income is indexed to inflation,” advisor Christine Butchart told Investment Executive.
The CPI measures price changes for a basket of goods and services, based on average spending by Canadians in a particular year. But this basket contains mutually exclusive expenditures, such as both rent and the cost of owned accommodation, and home heating costs using both fuel oil and natural gas.
As there can be large differences in the price increases for these expenditures, the inflation experienced by individuals can vary significantly, particularly in different areas of the country.
Younger people tend to spend more on electronics, for example, while older people will normally spend a greater percentage of their income on essentials like food and utilities. And people of any age who drive a lot will clearly be more worried about changes in the price of gas.
Consider this: The costs of operating a car have increased at a much faster pace than the CPI over the past decade — including increases of 80% for gas, 59.4% for insurance premiums and 57% for parking fees, for instance.
All this suggests that you’d be wise to use a somewhat higher inflation adjustment on the spending side than on the income side, Butchart says.
Are you currently feeling the sting of inflation? Do you worry about what this is going to mean in the future? What are you doing about it?
Gordon Powers, MSN Money
Posted by: Northern Ontario | Nov 11, 2021 9:03:08 AM
I had this same discussion a few weeks back with several of my friends. Their projection is based on 2% inflation. We are all in our mid-late 40's. We always talk about that $1 million target as a pension to ensure we have a very good retirement. However, there is a big difference between 2% inflation vs. 4% inflation. That's where many of the retirees now are feeling the affects of higher than planned inflation. The struggles are well publicized. The rule of 72 is simple math. It helps with financial planning. Take 72 / divide 2% and you get 36 years that it would take for your investment to double or for costs of goods to double. So if your loaf of bread costs $2.00 today, that same bread would cost you $4.00 in 36 years.
However, 4% inflation now equals to 18 years. So for those of us wanting to retire in 18 years, how much do we really need based on 4% if we have no company pension?
We now know that if you are 47 and retire at 65, that $1 million in today's money will be worth $500K at age 65. But inflation will still rise year after year from that point so that means that $4 loaf of bread at 65 will be worth $8 at age 83. If you don't even touch that $500K, it's worth is really $250K at age 83. Many retirees still don't understand this math so it's important for all of you to get more informed about this subject to better plan your retirement. Good luck and Good health.