Finding ‘wiggle room’ on a fixed income: How to offset inflation in retirement

For Canadians exiting the workforce or eyeing retirement, decades-high inflation levels have come at the wrong time.

The common cure for rampant inflation on a household budget is higher earnings, as Canadians and labour groups push employers to hike wages in line with rising costs. But for the recently retired, the soaring cost of living is forcing many to find clever ways to cut costs.

Global News dug into how inflation is pushing some Canadians to reimagine retirement in the final part of our Sticker Shock series.

Marylou Cyr retired in March after 32 years of working as a florist at a major grocery chain in Campbell River, B.C.

The 62-year-old tells Global News she hit a wall after two years in the pandemic, and despite wanting to put in a few more years to pay off her remaining mortgage, she decided it was time to call it a career.

But as she stares down rising costs and attempts to set a firm budget for her and her husband Mike, who still works seasonally, inflation has become a complicating factor in cutting down expenses.

The couple’s fixed income after taxes, including pensions and Mike’s Old Age Security, comes in around $3,800 per month, though that figure rises to more than $5,000 depending on his hours in B.C.’s summer tourism industry.

Cyr has been able to trim a few of the ongoing costs by adjusting her insurance premiums and is looking into lower telecom plans in retirement.

But the two-car household has felt the pain at the pumps.

The cost to fill up Cyr’s Toyota RAV4 used to come in around $60, but she last spent $109 on a tank of gas — a swing of roughly $50 in just a few months. When her husband retires, she says they’ll look at going down to a single vehicle.

Early attempts to set a budget for food have also been eye-opening as food inflation nears 10 per cent in recent months.

Cyr set an initial $800 household budget for food after she retired, but found she spent more than $925 in March and more than $1,000 in April.

“I am very concerned with the inflation, the rising food costs, as well as the rising gas costs. I think those are two main things,” she says.

To offset the higher costs of food, Cyr says she’s started leaning more on homegrown veggies and expanded her modest garden to grow fresh food.

She’s also beating the 7.2 per cent inflation on the price of eggs with four chickens of her own at the coop the family recently installed.

The threat of inflation still makes her “nervous,” she says, but adopting a more self-sufficient strategy gives her a bit more “wiggle room” on a mostly fixed income.

“Maybe I’ll start canning again like our parents and grandparents did and store everything for the winter,” she says.

“If I could get a cow in the yard, I might do that, but I can’t.”

Though Canada’s annual rate of inflation of 6.8 per cent is the highest level since 1991, figures in the decade preceding that were even higher.

Personal finance expert Pattie Lovett-Reid tells Global News she lived through the “outrageous” inflation of the early 1980s, which gives her the confidence that she and other recently retired Canadians will make it through the current cost of living challenges.

“What I can tell you is that we got through it. But you don’t get to it by sticking your head in the sand. You get through it by looking at your plan and tweaking your plan because you’ve been thrown a curveball,” she tells Global News.

“You have to look at how it impacts you. You may not travel to the extent that you did. You may not take the car out like you once did. You may decide to pull back on eating out. This isn’t forever.”

Lovett-Reid, known to many Canadians as a broadcaster and finance expert until she recently retired, has maintained “side hustles” to keep income flowing and ease her own exit from the workforce.

Cyr says she’s open to taking on part-time work as well — she’s already gotten three job offers since hanging up her shears — but sees the next while as a much-needed “gap year.”

For Canadians who may have been forced to retire before they were ready, there are some financial tools Lovett-Reid recommends exploring if they fit your financial profile.

She says a reverse mortgage, for example, can provide extra “financial wiggle room.” Reverse mortgages are either lump-sum or monthly payments that leverage the equity built up in a home with repayment typically delayed until the home is sold or the homeowner passes away.

Because they don’t require monthly repayments, they typically have higher interest rates ranging from five to seven per cent and can eat away at proceeds from a home sale. But most homeowners in Canada have seen a sizeable bump in home equity because of the recent boom in home prices.

An annuity is a form of insurance or investment that provides a fixed sum of money yearly, typically for life. The predictability of annuity payments offer a way to cover recurring costs.

But Lovett-Reid also warns not to pull out of the market completely in this way, or you’re losing further upside in your portfolio during retirement.

That decision is especially taxing, she acknowledges, in times when the market is experiencing a downturn, as it has been for much of 2022.

“Emotionally, it is tough. There’s no sugarcoating it, because you’ve spent your whole life building up your portfolio for retirement,” she says.

“There is a great desire to say, ‘I can’t take this risk and volatility’ and move to the sidelines. And that is exactly what you do not want to do.”

Before making the final call to retire a few months ago, Cyr says she took a look at the family’s savings, ongoing fixed costs and remaining emergency funds and decided the retirement lifestyle she had in mind was still within her grasp.

“I’m not going to live the lap of luxury,” she says. “I do have small savings, but it’s going to erode very quickly with inflation.”

Cyr and her husband are planning a few small trips in the near future, a jaunt to Hawaii with friends splitting the costs and perhaps a visit to mainland B.C., thanks to a modest travel savings account. Among the retirement gifts she received in March was a bundle of travel reward points that works out to the cost of one trip.

Lovett-Reid says now is the time to be “razor sharp on your numbers” as you set a budget to mitigate ongoing inflation.

The uncertainty around how long high inflation will last combines with the other variables that come with any retirement plan, and it’s important to leave a bit of space in your financial planning to accommodate unexpected higher costs.

“In retirement, there are always going to be wild cards. I often talk about extreme volatility in the market. It could be inflation. You could live too darn long. And the list just goes on and on and on,” Lovett-Reid says.

But even as she urges Canadians to “pull back” where they can, Lovett-Reid also says most people would be wise to not “err on the side of too much caution.”

The money you spent a career earning is there for you to enjoy in your “golden years,” she says.

“I don’t want people to save until it hurts, but don’t spend as if there’s no tomorrow.”

Now is a good time to explore options you might not have considered previously, such as downsizing or taking on part-time work, to make it through the lean times with money and time to enjoy the rest of your retirement, Lovett-Reid suggests.

“Each person has saved differently. And now is the time to explore all the options that make sense for your family,” she says.

— with files from Global News’ Anne Gaviola