# Retirement Planning and Inflation



## adampeps (Jan 21, 2011)

Hi all,

My wife and I are in our early thirties and have been doing a bit of retirement planning on our own based on what we've saved so far, what my work plan would provide now each year (obviously this fluctuates with my salary), what my wife's pension could be worth (provided no major changes to the shared risk plan), and then looked at CPP/OAS. We think we have a decent idea of what we would need in today's dollars to survive if we were to retire today, and based on all of the inputs (pensions, my RRSPs) I feel like the money we have coming in with rates of return of 6% and 2% in retirement (for my RRSPs) would provide us this magic number (i.e. costs to live * years of living).

Now where I am incredibly confused about is inflation. Obviously what we estimate in today's dollars is not even going to be close to what we will need in our 60's. But if I do a rough estimate of what our needs would be during that period using inflation #'s, I feel there is no way we could save that amount.

So I guess what I am wondering is if I feel like we have a good solid plan today that would account to retire in 30 years and assume no inflation that we should be ok as long as we increase when needed?

Hope this thread makes sense.

Thanks,
Adam


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## Davis (Nov 11, 2014)

For the past 20 years or more, Canada has averaged 2% inflation per year. Over 30 years, that means on average, a basket if goods will cost 81% more. 

Some people here will tell that prices are missing faster because (a) they can cite examples of three or four things whose prices have risen faster, (b) they keep track of their costs and know they are rising faster, and/or (c) there is a government conspiracy to hide the real inflation rate. 

I don't find these arguments more convincing than actual data on the huge range of goods and services that Statistics Canada reports on, but 2% annual inflation is significant over a long period like 30 years.


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## adampeps (Jan 21, 2011)

Davis said:


> For the past 20 years or more, Canada has averaged 2% inflation per year. Over 30 years, that means on average, a basket if goods will cost 81% more.
> 
> Some people here will tell that prices are missing faster because (a) they can cite examples of three or four things whose prices have risen faster, (b) they keep track of their costs and know they are rising faster, and/or (c) there is a government conspiracy to hide the real inflation rate.
> 
> I don't find these arguments more convincing than actual data on the huge range of goods and services that Statistics Canada reports on, but 2% annual inflation is significant over a long period like 30 years.


Thanks, but I guess what I am wondering is if I need to account for this at the present time. For instance if I feel like what I can save now will reach my goals in X years, am I somewhat safe? I realize my salary, pensions, etc should go up with inflation as well so am just hoping I can somewhat feel confident in my number using present day dollars.

Thanks!


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## steve41 (Apr 18, 2009)

(here I go again).... Look. You are sitting on more computer power than NASA had when they put a man on the moon.... (you get the picture)


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## birdman (Feb 12, 2013)

Yes, you should account for it at the present time but the retirement planning process is dynamic in that it changes constantly with inflation rates, salary, investment returns, lifestyle changes, and after you pay off your mortgage if you have one. CPP and OAS also change annually. If you are purchasing your own home you are somewhat exempt from the full cost of inflation as your cost are pretty well fixed. Similarly, if you have children your expenses go down once the leave. Also, not sure what your retirement expenses and lifestyle are projected at but you may also want to review this as well. Hopefully you did not project your retirement needs at something like 70% of pre retirement earnings as in my opinion this is a nonsense number. I was fortunate in enjoying a good salary in my latter years before retiring at 56 but only spent 40% or less of may salary in the years prior to retiring. Also, tax rates come into play as well as TFSA, income splitting, dividends vs interest income, etc. You also seem to suggest you have a company pension and what a great thing that is these days. If your spouse is working and you both receive maximum CPP and OAS thats around $36000. PA and then add on any company pension you could be in pretty good shape. 
If I were you I would just use the 2% inflation and keep reviewing your plan as the years go on. Lots will change and remember your housing costs will most likely be fixed. Have fun and don't stress about it.


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## Ottawa Realtor (Aug 16, 2015)

Try this website if it helps:

https://tools.td.com/retirement-calculator/

The other factor you have to consider is type of investment. Real estate is the best by far and can be done with no risk and no requirement on your part to deal with tenants. I work with beginner investors all the time and have specialized in that the last 5 years. Real estate will make 4 times more money for you than what the TD calculator will come up with. It's not complicated.


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## NorthernRaven (Aug 4, 2010)

CPP and OAS is inflation-indexed, and assume your salary at least keeps pace with inflation as well. As a cross-check, try running whatever calculations you are doing in current dollars. So if you want to assume 2% inflation, reduce your expected returns by that 2%. DB pensions will likely have inflation-indexing incorporated, for DC ones again adjust to real returns rather than nominal ones.
If you adjust your non-indexed pieces, your calculations will effectively be in current dollars, and easier to think with than trying to remember "is $50,000 a good or bad income 30 years from now after inflation"!


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## My Own Advisor (Sep 24, 2012)

That's what I plan for as well, about 2-3% inflation going forward for retirement planning. I expect capital gains should take care of that, dividends should provide the cash flow.


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## Davis (Nov 11, 2014)

I never considered trying to projecting current dollars. I set up a spreadsheet to project out from 26 to expected retirement at 52, and factored in inflation, expected returns on investments, salary increases, how much I expected to save. That got me to focus on saving and investing. 

24 years later, I know that almost all of my assumptions were wrong: I fell in love (which wasn't factored into my spreadsheet), moved to a different city, changed jobs a few times, and am 12 weeks from quitting two years before the date I had planned, and bringing my husband along with me. What was important was not the details. It was having the vision and the plan to drive my actions. The rest fell into place.

Now my spreadsheet (which is no longer in Lotus 1-2-3) projects out investment income, pensions down the road, spending (growing at 2%/year), and taxation so that we can live comfortable until we are at least 95. Check back in 45 years and I'll let you know how that went.


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