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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 ...

While the overall CPI rose 1.3 per cent in the 12 months ending December 2009, when you look at the smaller groups-like food, transportation, and the like-you get a clearer picture of how our budgets are being hit. In the same time frame, gas prices were up 25.6 per cent. Overall energy prices were up almost 6 per cent, and food prices were up 1.7 per cent. Shelter prices were down 1.7 per cent, primarily because of a drop in the price of natural gas and the decrease in mortgage interest costs. The mortgage interest cost index (yup, that's how specifically the basket can be broken down) fell almost 5 per cent because interest rates had fallen so low during that period.

Canada is a big country, and costs vary widely from one region to another. That's another reason the All-items Index, and the number you hear bandied about, has very little to do with individual Canadians' realities. If you live in the Atlantic provinces and your costs have gone up 3 per cent, you don't give two hoots about the overall CPI number.

Don't Drive Yourself Nuts with Inflation

So why do we talk about inflation if there are so many variables and variations? Because inflation affects the purchasing power of our money. If you were trying to figure out how much money you would need in May 1986 to live in May 1996 when you finally retired, wouldn't it be important to know that your dollar would purchase only 74 cents worth of stuff?

And that's why you'll hear all The Spurts talk about how important it is to take inflation into account when you're trying to decide how much money to set aside for the future, and how much you'll really need.

I'm of a slightly different mind. Hey, you can turn yourself inside out trying to figure out how much to save, and how much you'll have, and how much you'll need, but if you don't actually do something, it's all for naught. Sure, inflation will affect your purchasing power. But there's no way to predict it and nothing you can do about it, so turning yourself inside out over inflation is an exercise in frustration. Better to focus on what you CAN save than on how little your money will buy once inflation has taken its bite.

And that's the big problem we're seeing right now. People aren't doing very much. Our savings rate is in the dumper.

We've lost hope. We're sure we'll never be able to achieve what The Spurts are telling us we'll need. So we just don't bother.

Stop that! The only way to take control of your retirement and your future is to DO something. Never mind what you won't have.

Focus on what you will have, which will be more than if you turn your back on your future and do nothing.

Get Rid of The Magic Number

Okay, now that you understand inflation, you know it is what it is and being "scared" or "panicking" is pointless. You're also not going to let some Joe who doesn't know squat about you or how you live try to tell you how much you'll need, right?

Perhaps the most damage to our savings motivation has been done by the formulae and massive numbers that have been bandied about by retirement experts and journalists alike. Headlines declare that we'll need a million dollars if we don't belong to a company pension plan. A million dollars?

Really? And what do you do if you can't save The Magic Million? Give up?

Projections are just projections. They don't carry any water if the factors on which they are based are no longer true. And how can you "know" what's going to happen in the future?

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