Surging inflation is chipping away at your retirement nest egg — here’s what you can do to protect it

It takes decades to save for a comfortable retirement. And inflation, especially periods of high inflation, can chip away at your hard-earned nest egg.

The $80,000 a year you plan for retirement could be significantly reduced by the time you finally leave work behind.

Inflation has been slowly dropping from its 39-year high to 5.2 per cent in February from 8.1 per cent in June 2022. Still, many Canadians have panicked as they've watched future savings decline amid rising interest rates and even talk by some economists of possible recession.

The good news: there are tactics you can employ to bulletproof your retirement portfolio in times of economic uncertainty, experts say. While there's no magic formula, it simply comes down to diversity to help withstand market fluctuations.

Last year markets struggled with the benchmark S&P 500 recording its worst year since the 2008 financial crisis. And high interest rates to tackle inflation along with the war in Europe contributed to volatility, said financial adviser Jason Heath.

Stocks didn't help people last year," said Heath, managing director of Objective Financial Partners, and they lost money."

But he adds certain equities can be an inflation hedge," particularly companies such as grocery stores and other retail outlets that pass on increased costs to customers and can protect your portfolio from a rising cost of living.

Another option is bonds, said Heath, as the bond carnage" is likely behind us. When interest rates go up, bond prices typically go down, which leaves investors exposed to some interest rate risk.

One type of bond that you don't want to invest in, says retired actuary Malcolm Hamilton, is the 25-year government bond guaranteeing a three per cent return.

If inflation is 10 per cent you're just going to be taken to the cleaner," he said. Favour bonds where the return rate isn't locked in for a long period, he added.

In stocks, Hamilton says tech giants such as Google or Amazon can be an attractive option for long-term gains with their proven track record of stability and growth. And commodities, such as gold, oil and base metals, can also produce greater returns, as they tend to act as a hedge for investors against inflation.

While investing in different financial assets is a way to strengthen your savings, it's also important to remember that you still have government benefits and potentially a workplace pension.

Typically, people receiving the Canada Pension Plan (CPP) receive between $12,000 and $13,000 a year. Another possible benefit is the Old Age Security (OAS) which can amount to a maximum of $9,000 a year, experts say.

These benefits are also indexed, meaning they increase with the rate of inflation, Hamilton said.

Even if you're just receiving $1,000 a month in government pension it takes the pressure off your savings and investments, said Dan Hallett, vice-president of research at HighView Financial Group.

It doesn't seem like a lot," said Hallett but if you look at it in terms of what it would take to generate that extra $1,000 a month, then you start to look at that (government support) differently."

It's also crucial to enrol in a company's pension plan, he added, as employers often match contributions.

There is, of course, always the option to re-enter the workforce.

In America, more workers are unretiring," meaning the percentage of retired workers returning to work is increasing, according to the Current Population Survey conducted in the U.S.

Unlike in the U.S., the publicly available data in Canada doesn't have information on whether people currently working were previously retired," said Brendon Bernard, senior economist at Indeed, in a written response.

Retirees might consider a return to work due to a rising cost of living, unexpected expenses, or just not saving enough for retirement.

One way to reduce spending is even just to work part-time," said Hamilton, but re-entering the workforce can be a tough thing to do" depending on your age and situation. A 62-year-old who retired two years ago might find it easier to re-enter the workforce compared to a 75-year old-who retired 15 years ago, he said.

Hopefully, he added, Canada's high inflation period will end soon.

On April 12, the Bank of Canada forecast inflation to fall to around three per cent in the middle of this year and then decline gradually to the bank's two per cent target by the end of 2024.

You take projections with a grain of salt, but this inflation cycle is potentially almost done," he said. That can give people a bit of relief."

Clarrie Feinstein is a Toronto-based business reporter for the Star. Reach Clarrie via email: clarriefeinstein@torstar.ca