The best way to combat your enemy is to better understand it. The first step in dealing with inflation is to familiarize yourself with just what it is. Perhaps more importantly is understanding what impact it can have on your fixed income. By recognizing different types of inflation, you will be better able to plan for it particularly in a time when worldwide inflationary pressures are at extreme levels.
Seniors living on a fixed income should be very concerned over high inflation. Even a low 2% annual rate of inflation can have devastating effects on your pension or annuity income over time. This is particularly true when you do not have inflation indexing. Even with indexing, should you be so lucky, it can still reduce your purchasing power. Find out how long it takes to reduce your income’s buying power to one half at 2% inflation per year. Currently inflation in Canada is around 6%. Imagine what that will do to your purchasing power should it continue for very long.
Recent reports indicate an increasing shift from defined benefit pensions to defined contribution plans. This shifts the responsibility for ensuring an adequate pension from employer to employee. All the more reason for guarding against the erosion of your retirement income from inflation.