Protect Your Retirement Savings From Inflation with These 5 Steps

Updated: Jan 27

In the current market conditions, it's more important than ever to protect your retirement savings from inflation. By following these five simple steps, you can help ensure that your hard-earned money doesn't lose its value over time. So if you're concerned about the future of your investments, make sure to read on!

There have been lots of headlines lately about the high inflation rate Canada has been experiencing. We haven’t experienced inflation this high in decades. When you're planning your retirement, you want to take inflation into account. Inflation on average has been 2% since 1990. Now it is moving closer to 5%.

So, what to do? Here are 5 steps to protect your retirement savings from the effects of inflation.

1. Understand what inflation means

Media headlines are always meant to create an emotional response in us, so let’s first understand what inflation means. In economist jargon, what we call “inflation” is officially called the Consumer Price Index (CPI). Every month, Statistics Canada looks at a specific basket of goods Canadians purchase in their daily lives. Items such as food, housing, health care, gasoline and even recreational cannabis prices are reviewed. Today’s prices are compared to another period of time, such as last month or last year. They subtract the difference between the prices in the two periods, sprinkle a little mathematical dust and voilà, we have the change in the CPI, or inflation.

Right now, inflation is 4.8%. So, generally, an item that cost you $10.00 12 months ago costs you $10.50 today.

2. Understand how inflation will affect YOU

If something costs $10.50 today that cost $10.00 last year, that means you will be spending more money this year if you make no other changes, right?

So, what were your expenses last year? Say you spent $50,000 last year. That means you will spend $50,000 + ($50,000 X 5%) = $52,500 this year on the same things.

Are you able to spend that with no concerns?

Then go forth and carry on, nothing to see here. Truly, why worry and frustrate yourself over something you have no control over? This kind of inflation creates heartburn for federal governments and their central banks. Believe me, they want this kind of inflation to not last longer than a year or two at most and are doing everything in their power to make it go away as fast as possible so we can all get back to a lower inflation rate, if for no other reason than their political self-interests. Go enjoy your life.

For many people, though, bumping up their expenses by 5% is not an option. So, let’s look at some practical solutions.

3. Adjust your Mindful Spending Plan

You may not be able to control all of your purchases, but you can adjust some. What can you change? What can you do without? Make a game of it with your family! Use this time to try something new.

Go Plant-Based

I was speaking with a young mother who had a child with cerebral palsy. She and her spouse decided it was best if she stayed home full time so she could devote her time to their child’s healthcare needs.

This impacted their household income, as you can imagine. Because meat was so expensive, she tried stretching it across several meals. She quickly learned that a pound of beans would provide all the nutrition at a fraction of the cost of a pound of meat. And she could afford so little meat in each meal, they didn’t miss it anyway.

There are a variety of plant-based products and recipes available these days. Try one meal. You may be pleasantly surprised not only how much you enjoy them, but how much you’ll save.

Join The “Buy Nothing” Crowd

Trying out a new hobby? Search out groups on Social Media that encourage swapping to get the new tools you’ll need without spending money. Our neighbourhood has a “Buy Nothing” group where people post items they don’t need anymore and other neighbours arrange to pick it up for free or trade it for another item. Another group I belong to swaps puzzles.

Need new clothes for work? Try consignment and thrift stores. If you’re lucky enough to wear the same size as a friend, shop their closet! Or, shop your own closet and put together items you don’t normally wear together.

4. Understand how inflation affects investment markets

Stock Markets

Why do the prices of stocks tend to go down when inflation goes up?


The future value of a stock is affected by the price it is today and the future earnings potential of the company behind that stock. If we expect the company will earn less money in the future, we expect it to be worth less in the future. If we expect it to be worth less, then we’re not willing to pay as much for it in the future as we are today. So, investors buying that stock begin to offer lower prices for that stock, and the stock price drops.


Inflation raises the future expenses of companies just like it raises our future household expenses. If it costs more to run a company, then their future profit will be less, all else being equal. Again, less profit could mean a lower future stock price.

Plus, inflation affects interest rates. Interest rates affect the rate at which companies can borrow money. Therefore, inflation has a disproportionate effect on smaller companies than larger companies, because smaller companies likely need more debt to grow than a larger company. During times of high inflation, stocks of large companies with lots of cash and low debt do better than stocks of small companies with little cash and large debt loads.

Fixed Income (Bonds, GICs)

The Seesaw Effect

Here’s the key point to remember about bonds:

  • Interest Rates Up = Bond Prices Down

  • Interest Rates Down = Bond Prices Up

This means that the value of bonds you hold today will be worth less tomorrow if interest rates go up.

Interest rates very often rise if inflation is rising. There are market forces and government policy reasons behind why this is so.

In the short term, the value of bonds will go down when interest rates rise.

The Good News

On the flip side, if stock prices are going down, investors will sell their stocks and need somewhere to put their money. They can only hold cash for so long. So, they often invest in bonds. This causes bond prices to rise because of demand.

Eventually, higher interest rates will be a good thing for savers, because they will earn more on their bonds or GICs.

So, bonds can be a mixed bag when it comes to inflation.

5. Understand how inflation can affect your investments

If you’re not retired

As I mentioned, inflation is nearing 5%. Between 1960 and 2020, the average rate of return for the S&P/TSX Composite Index (TSX) was 9.3% per year.

You may need to adjust your expectations. The Toronto Stock Exchange was up almost 22% in 2021. That’s not a realistic expectation this year.

If you do not expect to be withdrawing money from your investments for the next few years, stay the course with your long-term investment plan and let your money do the work for you. In the long run, you will come out ahead, even if markets produce a negative return this year.

If you are retired

When you’re retired, you are withdrawing money from your investments to provide an income for yourself. You have to take less risk for at least part of your portfolio because you’re relying on it to be there when you need to withdraw it. For you, having fixed income investments as a large part of your portfolio may be necessary.

But, as I mentioned, the value of bonds you own may drop if you sell them at a time when interest rates are rising. How can you earn more and still keep risk relatively low?

One idea to consider is allocating a portion of your money into mutual funds or ETFs that invest in stocks that pay high dividends, such as Canadian banks and utilities. That way, even if prices drop on the stocks the mutual fund holds, you can still receive money in the way of dividends.

Rubin and Denise were about to retire when they first came to my office. They had always been frugal and managed to save up a good nest egg for their golden years. But when talk of inflation began to appear, they worried it would have a serious impact on their retirement planning.

They weren't sure what to do. They had to either stretch their savings even further or find another way to make up the difference.

But, they didn't want to do anything too drastic. They still wanted to enjoy their retirement! We sat down together and started brainstorming and came up with a few ideas.

Side Gig

Rubin was an IT professional who used to work in an office building but started working out of his home a year ago. He loved his work, but since Denise was retiring, he wanted to be free to travel with her. He approached his company and offered to be a consultant working on projects on an as-needed basis after he retired as an employee. His company was thrilled with the idea. Now he works from anywhere and has no set hours as long as he completes the work needed.

Delaying CPP

Since Rubin was still working, he chose to delay receiving his CPP benefits. For each year he delays receiving CPP beyond age 65, he'll receive 8.4% more money when he starts receiving his payments.

That means if he waits till age 70, he'll get 42% more money than if he decided to start taking payments at age 65. That's like receiving a guaranteed return of 8.4% every year!

Let it Go

Rubin and Denise spent some time envisioning how they would spend their days in retirement. They soon realized they weren't going to need half the household items they owned.

One of the biggest items was their car. With Rubin working at home and their desire to do things together, they didn't need two cars. So, they sold one of their cars and replaced it with an electric bike.

Now, if Rubin wants to meet friends or go to the store while Denise is out running errands, he straps on his helmet and heads out.

These simple changes, along with careful investment planning, gave Rubin and Denise the freedom and security they needed to start their new life.

The Bottom Line

Remember that headlines are meant to grab your attention. Take them with a grain of salt. Look at the real data for yourself. Understand what it means for you. Then take action as needed.

Money does not just disappear. Money is always in motion. All market conditions provide opportunities as well as challenges.

But we can’t predict what type of investment will make money at any one time. That’s why we need to be invested in different things all the time. That’s what we refer to as a “diversified portfolio.” A little of this, a little of that.

That way, when inflation comes, when recession comes, when unexpected events come, you can weather the storm.


Are you worried about the future of your investments?

At Glory Gray Wealth Solutions, we offer portfolio management and financial coaching to Canadian investors. I've been in the finance industry for over 20 years and can help you manage your money so that it’s working harder than ever before!

You don’t need to worry about inflation because we take a holistic approach to managing your portfolio that helps you weather the downcycles and take advantage of the up cycles. I will handle all your investment needs, while you focus on what matters most – growing your business, enjoying your retirement, or spending time with family and friends.

Download our Free Guide on 12 Smart Questions to Ask When Interviewing a Financial Advisor.

Copy of blog header (1).jpg
Don't miss out!
Get every post, exclusive bonus content,
and free guides straight to your inbox.

Success! Well done, you!