Inflation: Major impact on your retirement plan

Rising inflation can have a major impact on your retirement plan. For some, this will require simple adjustments to the amount they save, but for others, it could mean postponing retirement. Solutions within your reach. Our advice, with Sébastien Mc Mahon, Chief Strategist and Senior Economist, and Frédéric Lessard, Regional Vice-President of Sales at iA Financial Group.

Ashleay: Welcome to iA Financial Group's “In Your Interest!” podcast. My name is Ashleay, and this time we're going to talk about a subject that some people, including me, tend to procrastinate on, and yet it's planning for 30 years of our lives; so, it's no small thing. You'll have guessed it. I mean retirement. The current inflation surge obviously has people talking, but does it have an impact on our retirement plan? It may require adjustments like more savings or budgeting. So, to chat about this, I have with me, as always, Sébastien Mc Mahon, Chief Strategist and Senior Economist, as well as Frédéric Lessard, Regional Vice-President of Sales at iA Financial Group. Hi, Frédéric. Hi, Sébastien.

Sébastien: Hey, Ashleay.

Frédéric: Hi.

Ashleay: Great to have you guys in studio with me today. So, first of all, Frédéric, do you have any up-to-date information on the retirement situation?

Frédéric: Yeah, retirement. What a great topic. Did you know that currently 7 million people are retired in Canada, and in the next ten years, it's probably three more million people will be of retirement age. This is really a subject that affects many people. Considering that one in two Canadians do not consider having a retirement plan, I think it is worthwhile to take an interest.

Sébastien: Until they invent the time machine. I mean, you need to think about your retirement while you're not retired yet. Instead of waiting for the retirement age to just realize, you know the missed opportunity, right?

Frédéric: Oh, yeah. But we're fortunate to have government programs to help us in retirement. You know, OAS, QPP, sorry, Old Age Security and Quebec Pension Plan, for instance. However, we must remember that these programs were designed to cover people's basic needs. So, for example, in general, the OAS, we're talking about $7,000 per year. If we look at QPP., we're talking about $15,000 per year. Considering the average income in Canada, this program might represent like 40% of retirement income. It is therefore important to save so we're not relying only on these programs.

Sébastien: So, these cover the basic needs, but if you want to keep your lifestyle, that's when the retirement plan comes in.

Frédéric: Yeah, exactly.

Ashleay: And Frédéric, can you give us a picture of the current situation in terms of what are the saving habits of Canadians?

Frédéric: Yeah, sure. According to Statistics Canada, the saving rate last year was 5%. That means that if we earn $100, we take five of it for our savings. As a comparison, on average in Canada, we will allocate like $30 to $40 for housing, $17 for transportation and $13 for food. So, there might be some room to save some more.

Sébastien: Yeah. And saving habits are something that's hard to build through time. It's not everyone that has them. And if you want to build them, that means that you need to sacrifice something else. So, you know, we often hear about rules of thumb for saving for retirement. Do you have any rules of thumb that could at least help people frame the problem in their minds?

Frédéric: Yeah. Yeah. We have two rules of thumb that we like, especially. The first one, to keep your standard of living upon retirement, you will need between 60% to 80% of your actual income at retirement. So, to get there, and here's the second rule of thumb, you need to save between 10% to 20% of your income on average. So, you will achieve your goal of comfortable retirement.

Ashleay: Right. And not everyone is in the same place when it comes to retirement. Are there any benchmarks that we should look at?

Frédéric: Yeah. When it comes to retirement discussion, sometimes it gets really complicated, technical. I like to think to keep things rather simple. So, we split the active life in three phases. The first phase, I call it Awakening, is from 18 to 35 years old. It's a phase where you don't have to have a retirement plan. The thing that is essential is really to have good saving habits, good saving discipline. I agree with what you just said, Sébastien. It's not easy to save money, but it's important. So, you need to find ways to save money, to have good saving habits. One way to do to do that is with a financial advisor. A trustworthy financial advisor that you have a good relationship with is going to be able to give you some tips or occasion, where it gets easier to save money.

Sébastien: Yeah. And you need to learn to pay yourself first at that age instead of just buying the next thing that you'd like. Trying to build habits. This is when it happens.

Frédéric: Yeah. Really important. I like to think we all should save some money at every paycheck. There is not small savings. It could be $50 per month. That's that would be a good start. And then, as I said, there is occasions where you can take a bigger leap. For instance, the end of car loan payments. Then there is a few hundred dollars available in your budget. That's a good occasion to create good saving habits. The end of student loan payment. There's another example, and your advisor is there to really point these occasions to you so you can capitalize on it

Sébastien: Or salary increases. And you know, it's a thing that we've discussed multiple times Ashleay, in the past. You know, it's one of the strongest forces in the universe is compound interest. So, starting to save at 18, 19, 20, even if it's a few dollars, can make a huge difference when you reach 65.

Ashleay: Yeah. And then the next stage, I'm assuming, would be 35 to 50, I guess.

Frédéric: Yeah, absolutely. And at this stage things settle down a bit. The career is launched, the children have arrived. Oftentimes the residence has been purchased. So, then it becomes really important to clarify your plan for retirement. At what age do I think I will retire? What kind of retirement do I envision? Do I want to travel around the world? Do I want to keep working a little bit, you know, during retirement? Those are questions that come at this stage, and it's really important to have a more in-depth reflection on the state of my savings. To do that, you can, as I said, meet your financial advisor or if you like, more at home on your own. There is a website, great website, totally free. It will take you a few minutes and you're going to have a clearer picture of what your savings look like at this point. And are you on track to meet your retirement goals?

Sébastien: So, the website you're discussing here, what would that be?

Frédéric: It's SimulR, so go on Google type S-i-m-u-l-R and you're going to get there.

Sébastien: Okay. And this is a site from the government of Québec to help you plan for retirement. Maybe there are sites from other provincial governments out there, but the idea is they have used the resources that are out there. At least they'll give you the picture, if you're behind, if you're ahead, and then you can act and you can contact an advisor or change your strategy if you want to adjust.

Frédéric: Absolutely. And I mentioned this one because it's especially user friendly. It's easy to use; in a few minutes you're going to have a good information, precise information. But yeah, there might be some others that make the same calculation and analysis for you.

Sébastien: Okay. And when you're getting near retirement, like between 50 and 65, then it's time to make the final adjustment to the plan.

Frédéric: Yeah. If you don't have a plan at 50 years old, then you need to really look at it. It's more urgent. It's not the end of the world, but it's more urgent. If you have a plan, then you need to solidify it. Think about your depth analysis. What do I do? What should I do with my mortgage? Starting thinking about the precise age at which you want to take retirement. Think about disbursement planning Really important when you get close to 65, disbursement planning can make a huge difference in your pocket.

Sébastien: Yeah. And fiscal opportunities too come into play.

Frédéric: Oh, yeah. It's a little technical, Ashleay, but when we're talking about disbursement planning, we're talking about where the money will come from.

Ashleay: Right. What will we take out first?

Frédéric: Yeah. And then second and then third so we can protect some, let's say, government revenue that we might have.

Ashleay: Right? Because if you take something out, for example, from your RRSPs too early, you might cut yourself on other funding that you could be getting from the government.

Frédéric: Exactly. And I still look for somebody who's happy when it happens. It's terrible.

Sébastien: Yeah. So, you know, in my work, I talk with a lot of financial advisors and they always say that you need to ideally review the plan every three years. And maybe even more importantly, when you are in retirement, when you're age 65 and over. So why would they say that?

Frédéric: Yeah, three years is a rule of thumb. It could be more frequent than that, but lives change. So, your health changed, your, let's say your life changed. The health of your loved one could have changed, your preference. Your activity could change. Sometimes there is external forces, like currently we have inflation, and we don't necessarily need big changes to review the plan. Sometimes it's just I have something on my mind. I've heard that it could impact my lifestyle down the road and the goal of retirement is, you know, enjoy life. So, this visit with your advisor every three years is there to make sure you have a clear mind, and your plan is solid so you can just enjoy.

Sébastien: Yeah. And one of the biggest risks is always longevity risk or the risk of outliving your money. So, you know, planning ahead helps a lot.

Frédéric: Oh, yeah.

Ashleay: Well, thank you, Frédéric. Thank you, Sébastien. It's a great pleasure to hear from you. And to all our listeners, thank you for being here. And if you're interested in the subject and want to learn more, I invite you to listen to the first episode on retirement that we published. Also, feel free to write to us if you have any questions or comments. Have a great day everyone. Love this podcast? Want to know more about economic news? Follow our “In Your Interest!” podcast available on all platforms, visit the economic news page on or follow us on social media.


Sébastien has nearly 20 years of experience in the public and private sectors. In addition to his roles as Chief Strategist and Senior Economist, he is an iAGAM portfolio manager and a member of the firm’s Asset Allocation Committee. All of these roles allow him to put his passion for numbers, words, and communication to good use. Sébastien also acts as iA Financial Group’s spokesperson and guest speaker on economic and financial matters. Before joining iA in 2013, he held various economic roles at the Autorité des marchés financiers, Desjardins, and the Québec ministry of finance. He completed a master’s degree and doctoral studies in economics at Laval University and is a CFA charterholder.

Sébastien Mc Mahon and Frédéric Lessard

This podcast should not be copied or reproduced. Opinions expressed in this podcast are based on actual market conditions and may change without prior warning. The aim is in no way to make investment recommendations. The forecasts given in this podcast do not guarantee returns and imply risks, uncertainty and assumptions. Although we are comfortable with these assumptions, there is no guarantee that they will be confirmed.

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2024-05-17 12:59 EDT
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