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The people who sell retirement planning and the people who typically write about retirement planning have managed to drum into our heads the fact that we’re gonna need a bazillion dollars if we ever hope to retire. It’s left many of us feeling inadequate. (Photos.com)
The people who sell retirement planning and the people who typically write about retirement planning have managed to drum into our heads the fact that we’re gonna need a bazillion dollars if we ever hope to retire. It’s left many of us feeling inadequate. (Photos.com)

Book Excerpt

Forget what you've been taught about retirement saving Add to ...

The following excerpt is from Never Too Late: Take Control of Your Retirement and Your Future by Gail Vaz-Oxlade.

If one more person asks me how to make a million dollars so they can retire comfortably, I'll scream. The people who sell retirement planning and the people who typically write about retirement planning have managed to drum into our heads the fact that we're gonna need a bazillion dollars if we ever hope to retire. It's left many of us feeling inadequate. It's left some of us depressed; we know we'll never make it. And it's scared some folks into sticking their heads into the sand and hoping the retirement hunter doesn't come up behind them.

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Hey, the hunter's coming. Sticking your head in the sand is not the answer. But neither is The Magic Million that's often tossed about as the Holy Grail of retirement savings. I want you to forget everything you've heard about how much you'll need. Just forget about it. It's irrelevant to you what Jack will need, or how much Jenny will have. The only number that's important is how much YOU will need.

I'm going to help you figure out just that.

The other thing that The Spurts use to put the fear of God into people who are saving for the future is the spectre of inflation. "Inflation" gets bandied about a lot, but most people don't have a clue how it affects them. And you should. Don't worry. I'm not going to ask you to calculate anything. But you should understand what inflation is and how it affects your purchasing power.

Know How Inflation Works

Imagine that you're selling lemonade. It's a hot day and there's a big demand for a tall, cold glass of what you've got. You can probably charge two bucks a glass and get away with it. Yup, thirsty people won't think twice about shelling out for a little lemony relief. And if you're down to your last glass or two, someone may offer a premium, coughing up an extra 50 cents to grab a glass. So, when supply is low and demand is high, prices jump. Of course, if your next-door neighbours all decide to set up their own lemonade stands, you're going to have to practically give it away to get it off your hands. And if the weather suddenly changes, a cold wind blows the leaves and your customers' thirst away, nobody is going to pay a red cent for your lemonade. What's true for lemonade is also true for money.

When there's more money than stuff to buy, prices go up. When there's more stuff than money, prices go down. Inflation is the measurement of the changes in prices of all that stuff.

The Consumer Price Index (CPI) is the way we measure inflation. The CPI is a measure of the rate of price change for goods and services bought by Canadian consumers. It is calculated by comparing the cost of a fixed basket of items that we buy in a particular year. Since the stuff in the basket never changes in terms of quantity or quality, the CPI shows pure price movements.

So what's in the basket? Prices for a whole bunch of stuff including food, shelter, energy, clothing, education, health care, personal care, transportation, recreation, booze, and smokes. It's a big basket, and if you want to know how everything compares, then you look at the whole basket, called the All-items Index. But since most families don't buy everything in the basket every year, the All-items Index-and the inflation rate generally quoted in the media-can be very misleading.

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