While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster.
—Benjamin Graham
Inflation delays retirement for half of older Canadians
Results of a survey of Canadians older than 55 conducted in June 2022.
| I have delayed (or plan to delay) my retirement because… | |
|---|---|
| I don’t have enough savings/investments | 62% |
| Rising inflation/cost of living this year | 54% |
| I have too much debt | 40% |
| My children still require financial support | 26% |
| I love my job too much to quit | 23% |
| The COVID-19 pandemic | 21% |
| I am taking care of my partner/spouse | 13% |
| I am taking care of my partner or other family member | 10% |
The goal of this chapter is education, which, in my mind, is key to eliminating fear of the future. So, let’s look at some of these risks and what can be done to plan for each one.
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Lifestyle inflation
When people think of the word “inflation,” they naturally recognize it as an economic term. Inflation affects all aspects of our economy, and we’ll talk about this shortly. However, lifestyle inflation is just as important to discuss.
Think about this. You have been working for a particular company for several years, and you just got hired by another business that pays you a lot more; in fact, your take-home pay has increased 30 percent overnight.
The first thing you do is think of how you are going to spend that extra money: a new car, a larger home or apartment, a vacation, new clothes—the list is endless.
Lifestyle inflation is a simple equation that most people follow: The more you earn, the more you spend. It is termed “lifestyle inflation” because one’s standard of living goes up in relation to the income earned.
The problem is that people tend to spend like there is no tomorrow instead of saving for tomorrow. And in doing so, they shortchange their financial future.
For example, if you were to spend $500 of extra pay from your new job, you could cost yourself literally years of extra work. Consider that investing $500/month over ten years at an annualized 5% rate of return would net an extra $75,000.