EP # 213 | Why Your Safe Retirement Money Might Be Your Biggest Risk
Your Retirement Planning SimplifiedShow Notes
"My pension pays $4,000 a month for life." "I've got a million and a half in GICs and I'll live on $100,000 a year for the next 20 years." Both statements are said with real relief - and both people might be taking on a lot more risk than they realize. Today Joe explains why guaranteed is not the same as protected, and what to check so your income still holds up at 85. Most people plan retirement in today's dollars. They look at what they spend now, match it to money that feels secure, and call it done. It looks great at 65. But prices go up every year, and if you are retired for 30 or 40 years, the gap between what your income guarantees and what it actually buys can be enormous. Joe walks through how each common income source handles inflation, what a GIC really guarantees, why retirement lasts longer than most people plan for, and what your portfolio needs to do to fill the rest.
In This Episode At 3% inflation, $4,000 a month has roughly half the buying power after 20 years. The same deposit lands in your account, but it buys a lot less life. And a $100,000-a-year lifestyle costs about $180,000 a year in 20 years at that same rate. It never feels like a big hit in any single year, which is exactly what makes it so easy to miss.
Canada Pension Plan (CPP) is adjusted every January based on the consumer price index. Old Age Security (OAS) is reviewed four times a year and does not go down if prices fall. Both earn a check mark. Workplace pensions are different. Some are fully indexed, some partly, some only when the plan decides it can afford it, and some not at all. Check your plan booklet or administrator to find out which one you have.
A GIC guarantees your principal and the interest rate over the term you locked in. It does not guarantee the rate you will get at renewal, and it does not guarantee what that money can buy. Over the last 20 years in Canada, GIC rates have averaged roughly 2% while inflation averaged about 2.2%. Before tax, GIC money has essentially been standing still or losing purchasing power slowly. After tax, in a non-registered account, the gap is wider.
A couple with a million and a half in GICs who need $100,000 a year might feel the math works for 20 years - and on a flat spending assumption it almost does. But if their costs rise 3% a year with inflation, that same million and a half runs out in about 15 years. And for a couple retiring in their early 60s, there is a real chance at least one of them lives well into their 90s.
Your portfolio needs to fill the gap, and it needs to be built for rising costs. That means a defense bucket for shorter-term spending so a bad market never forces you to sell at the wrong time, and a growth component for longer-term money so it has a chance to stay ahead of inflation for the next 20, 30, or 40 years. A portfolio that only keeps your principal safe does not address inflation risk, interest rate risk, or longevity risk - and in that sense, GICs carry more risk than they feel like they do.
Your one action this week: List every income source you will have in retirement and mark beside each one whether it keeps up with inflation. If you built your retirement income timeline you created (from Episode 212), you can add a note beside each line. If you do not know the answer for a source, find out! You cannot build a proper plan without it.
About: Your Retirement Planning Simplified is a weekly Canadian retirement planning podcast hosted by Joe Curry, CFP, CEPA, of Matthews and Associates, an independent wealth management firm. Each week, Joe breaks down retirement income, tax, and estate decisions in plain language for Canadians who are near or in retirement.
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