Inflation’s Bite on Your Wallet: How Projections Keep You Ahead

Since 2020, inflation has been on everyone’s mind and for good reason, grocery prices have skyrocketed, and for many items, costs haven’t dropped much over the past five years. Even though inflation rates have fallen from the peaks of 2021 and 2022, it may not feel that way in our day-to-day lives. Understanding the long-term impact of inflation on your purchasing power is essential.

Take a simple example: currently a loaf of bread costs around $3.27. If inflation were zero, we could expect to pay that price for years. With a 3% annual increase in income, the cost would feel even smaller. But in reality, inflation averages 2–3% per year. At 3% inflation, that same loaf would cost $4.39 in 10 years. That’s $1.13 more per loaf. Buy one a week, and you find yourself spending an extra $59 per year. Retire at 65, and by age 90, that loaf could cost around $7 or $364 annually for an increase of close to $200.

Now imagine applying this across all your expenses. A $300 monthly heating bill today could rise to $628 a month by age 90 at the same 3% rate. If your pension isn’t inflation-protected, even modest increases in expenses can quickly outpace your income. If you are relying on government benefits to cover a large portion of your monthly spending, what if CPP and OAS don’t keep pace with these rising costs?

That’s why it’s essential to plan ahead. Look at your projected income, investment returns, and savings growth over time. Understand how your future expenses may rise and what resources will be available to cover them.

Pay attention to the spread between your investment returns and inflation. Simply assuming your current income will always be enough can be risky. Projections help you see how your savings grow, how your expenses evolve, and what might remain for your estate.