How to help your retirement portfolio stay ahead of inflation

Rising inflation particularly the kind of record inflation seen recently will always make the headlines While many people worry about how they’ll be able to afford increasingly expensive products, retirees tend to worry more about how much it will cause their savings to lose value.

When “safer” investment options, such as corporate and government bonds, are delivering returns considerably lower than the rate of inflation, this is an understandable concern.

Let’s take a closer look at the impact high inflation can have on your portfolio, why keeping money in cash can be a mistake and how to help your retirement portfolio become inflation proof.

How inflation can impact your retirement savings

Many retirees wonder if they’re going to be OK in retirement; will they have enough to spend and will their savings last?

Inflation can certainly make your investments less valuable unless your retirement income is able to keep up with it

That’s why it’s important to know the details of all of your sources of retirement income. Many of them, such as the Canada Pension Plan/Quebec Pension Plan and Old Age Security are adjusted regularly for inflation.

Other income may not be inflation adjusted, however, such as some company pensions and retirement savings (for example, investments in your Registered Retirement Savings Plan and Tax-Free Savings Accounts). These investments’ ability to outgrow inflation will depend on their performance. During a situation like we experienced in 2022, with high inflation and a financial market downturn, some retirees could find part of their retirement savings drop in value, at least over the short term.

If inflation does bring about a considerable shortfall in retirement income, there are a number of options available. You could delay retirement, work part-time in retirement, lower your retirement spending or downsize your home and use the cashed-in equity to cover the shortfall. None of these are ideal, but there are ways to help avoid them from happening.

Converting investments into cash isn’t the solution

A common reaction when financial markets start to lose value is to sell stocks, bonds and mutual funds, and convert them into cash accounts.