Protect Your Retirement Portfolio from Inflation: 4 Steps for You

There’s a psychological shift here. A bit of fear can creep in. Without an employer giving you annual increases, you may wonder: How will I keep up with rising costs? But think back—did you always get a raise each year? Was it ever exactly what you expected? Did life fall apart when the raise wasn’t ideal? Probably not. You adjusted, and you will again.

Inflation in Retirement Is Personal

Here’s the truth: inflation in retirement isn’t just about national statistics or headlines—it’s about you. It’s about your lifestyle, your choices, and your unique spending habits. There’s a common saying in finance: “personal finance is personal.” While it might sound cliché, it’s especially true when it comes to inflation.

The official Consumer Price Index (CPI) may report a certain inflation rate, but that doesn’t necessarily reflect the reality of your spending. If you’re not driving much, rising gas prices may not affect you. If you grow your own vegetables, food inflation may feel irrelevant. Your “personal inflation rate” is what really matters.

Are you aware of your personal inflation rate? Have you ever tried calculating it? Consider Microsoft 365, for instance—it recently saw its first price increase in 12 years. Or look at Costco, where membership fees rarely change. Inflation isn’t always consistent or predictable.

The historical Canadian CPI (Consumer Price Index) can be played with across a lot of details as you can see below. As a quick summary, you can see the price change over the past 15 years.

Be Aware of Your Inflation

Let’s take fuel prices as an example. Gas costs vary dramatically—not just across Canada, but even from town to town within a province. So when a financial advisor quotes you a national average inflation rate, it may not reflect what’s actually happening in your wallet.

This logic applies to every aspect of your spending. Not everything goes up in price yearly, and some items you regularly buy might even go down. You have more control than you think.

Control starts with awareness: know what you spend, where you spend it, and how those expenses change over time. A well-structured budget isn’t restrictive—it’s a tool that gives you power. It allows you to pivot, make choices, and adjust.

And yes, we are creatures of habit. We have our go-to brands and preferred stores, but retirement may be the perfect time to reassess. Could switching to different products or services reduce your inflation exposure? Could you downsize or relocate to reduce housing or utility costs? Exploring these possibilities can pay off more than you might expect.

Tracking the Obvious Items

• Housing-related spending includes rent, mortgage, strata fees, and insurance. Of these, insurance often rises more quickly—fortunately, it’s one area where you can shop around and potentially save by bundling policies.
• Groceries and Gas are also pretty obvious and easy to track.
• Entertainment can vary massively, but you can budget against eating out per month and control your inflation this way. The same can apply to various forms of entertainment.
• Holidays and vacations are often more affected by currency fluctuations—especially the Canadian dollar—than by inflation itself. Building this into your travel budget helps you plan smarter and avoid surprises. I understand it can be challenging to plan ahead and avoid increases, but if you are a traveller, you will understand how to manage that.

Play with the details below to understand how you can be impacted. Inflation is tracked and reported across those categories.

Plan Using Historical Inflation—but Stay Flexible

When building a retirement plan, it’s common to use a long-term average inflation rate—often around 2% to 3%—to estimate future expenses. This gives you a ballpark figure to work with, especially when calculating how much you need to withdraw from your portfolio each year.

But don’t stop there. Flexibility is key. If inflation spikes in a particular year (as recently), you may need to adjust your withdrawals or temporarily reduce spending in certain areas.

One critical danger is withdrawing too much too soon—especially from equity investments. When you sell investments in a down market to cover living expenses, you lock in losses and reduce the money that could be working for you long-term. This is known as “sequence of returns risk,” and inflation only amplifies it.

Is Your Portfolio Keeping Up With Inflation?

This is the million-dollar question.

The key number to focus on is your annualized rate of return—not just your performance from the past year. One-year returns can be misleading because markets fluctuate. A single strong or weak year doesn’t define your portfolio’s long-term trajectory.

A common misconception is that you must “beat inflation” every single year. That’s not the case. If inflation rises 3% this year, you don’t need a 4% return in that year to stay ahead. What matters is the cumulative growth of your portfolio over time.

For example, take my parents’ portfolio. They’re in their mid-80s and have a conservative allocation—mostly bonds. Their return hovers around 3%, which aligns with their low spending and minimal risk tolerance.

In contrast, my portfolio has a more growth-oriented mix, and I’ve been averaging around 12% annually, even after accounting for tariff impacts. But my spending needs, goals, and timeline are different.

If you’re holding a traditional TSX-based portfolio—or following the “Beat the TSX” strategy—you might see returns in the 7% range, including dividends. That generally outpaces average CPI inflation, but not by a large margin.

Now, once you start adding bonds, GICs, or holding more cash, your overall return could drop—possibly below inflation levels. That’s when you want to be cautious. While lower-risk assets bring stability, they can also reduce your ability to keep up with rising costs, especially over decades of retirement.

A Smarter Way Forward

Handling inflation in retirement isn’t about fear—it’s about strategy. Here are a few key takeaways:

• Track your spending trends. Focus on your personal rate of inflation, not national averages.
• Use a flexible budget. Be proactive about adjusting to price changes.
• Diversify your portfolio. Include assets that historically outpace inflation, such as equities, tangible assets (like real estate), and inflation-linked bonds. A solid screener can really help you find appropriate holdings for your portfolio.
• Be mindful of withdrawal strategies. Avoid selling too much of your growth assets during downturns. Use the bucket strategy for safety, which requires some planning ahead.

The bottom line? Inflation doesn’t have to derail your retirement. With awareness, planning, and a willingness to adapt, you can stay in control—and possibly even thrive.