The future cost of your retirement

Many Canadians might think just saving for retirement is hard enough, let alone figuring out what their savings might afford them in the future.

But knowing how much inflation may influence your cost of living 10, 25 or 50 years from now should be an important part of everyone’s retirement plan.

Inflation measures the general increase in consumer prices and subsequent fall in the purchasing value of money.

There have been episodes throughout history of very high inflation or hyperinflation, which aggressively erodes the value of money and assets, and also periods of very low inflation or deflation that may cause the price of goods and services to fall over time.

For example, countries like Argentina, Yugoslavia and Venezuela have battled severe hyperinflation at different times over the past 25 years.1 In 2008, inflation was so elevated in Zimbabwe that prices were doubling almost daily.2 Japan, on the flip side, has continued to face the prospects of deflation for over 20 years.3

Canada’s inflation rate has been relatively benign in recent years and continues to hover below the Bank of Canada’s target inflation rate of 2%.4 Relatively stable prices are expected to remain the norm in the country, but even so, the future cost of expenses might surprise you.

Knowing what to potentially expect could go a long way in helping you decide how much you need to save for retirement.

The future cost of your retirement

*Cost of a coffee and donut based on Tim Hortons prices; cost of major junior hockey game based on London Knights regular season ticket. Projections were performed using the Canada’s historical Core CPI (i.e. excluding the most volatile components as well as the effect of changes in indirect taxes on remaining components), offering a more ‘normalized’ inflation rate over time. The approach was to randomize the inflation rates between a floor of 1.2 and ceiling of 2.8 in any given year. If we average out the next 50 years, we yield ~ 2.0% inflation, which aligns with the BoC’s general mid-target of 1-3%.

1Cato Institute
2Cato Institute
3Bank of Japan
4Bank of Canada