By now we’ve all heard the story about inflation: “Sure, prices will rise, but your salary will rise too, so it’s nothing to be concerned about.” Indeed, mild to moderate inflation can be healthy, a sign of economic growth. But there’s one group of people who do tend to get hit hard by inflation:
Retirees.
Many retirees live on fixed incomes. Specifically, pensions that are not indexed to inflation. Canada’s CPP is inflation-indexed, but it doesn’t pay much. Many employer-sponsored pension plans simply pay a set amount per year. Typically, it’s a percentage of a person’s best few earnings years. For people earning a fixed salary for the rest of their lives, inflation is a daunting prospect. In this article, I’ll explore the effect that inflation has on retirees–and what can be done about it.