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As the COVID-19 global health pandemic has so dramatically demonstrated, our plans can be impacted by events we can’t predict.
In the wake of the pandemic, we are now seeing another event that was unexpected for some: rising inflation.
In October 2021, Canada’s annual pace of inflation reached an 18-year high of 4.7 per cent. The last time this level of inflation was seen in Canada was February 2003.
For the nearly 26-million Canadians who are members of the Gen X, millennial and Gen Z generations, this is the highest rate they’ve ever witnessed or experienced as a consumer. This cost-of-living acceleration can be all the more unsettling for younger generations because it’s so unfamiliar.
Many Canadians are feeling anxious about rising inflation, says David Terry, vice president and head of TD Wealth Financial Planning.
“Our Financial Planners are finding that more clients are asking, ‘With the increasing cost of goods and living, will I be okay? Will my investments be okay?’”
Concerns around rising inflation are somewhat different depending on a person’s age, stage of life and financial planning, says Terry.
“Younger clients tend to have concerns about their careers and their earning power, along with protecting their wealth while also saving for large purchases like a home or saving for kids’ education. Increases in the cost of living can create more stress as people worry whether they will be able to reach their financial goals, particularly if their income and earning potential doesn’t rise to match the increase in prices.”
On the other hand, those who are approaching retirement or who have already retired face different challenges and concerns.
David Terry"Increases in the cost of living can create more stress as people worry whether they will be able to reach their financial goals, particularly if their income and earning potential doesn’t rise to match the increase in prices.
Vice president and head of TD Wealth Financial Planning
“Our retired clients or those approaching retirement are more focused on protecting and conserving their wealth. Many are concerned about whether their life savings will still sustain them through retirement if inflation persists. Our Financial Planners can help these clients re-evaluate their retirement income projections to help them navigate this changing environment,” says Terry.
People are also worried about how much higher inflation will go, what it will mean for interest rates and how long this inflationary period will last, Terry adds. Many clients are seeking guidance from their wealth professionals to determine how they should navigate this period.
Planning for uncertainty and building financial resilience
According to the Bank of Canada, inflation could reach 5 per cent by the end of this year, with a return to the two-per cent target expected by late 2022. However, these projections could change, so it’s important to prepare for the unexpected.
“Planning for uncertainty is an important part of our financial planning process at TD Wealth,” says Terry. After helping their clients navigate the challenges of an unexpected life-changing event on the scale of the COVID-19 pandemic, financial planners are also well prepared to guide them through the current uncertain waters, he adds.
The professionals of TD Wealth Financial Planning support their clients through a four-pillar planning structure to build a comprehensive financial plan. The four pillars are: implementing tax-efficient strategies; protecting what matters; building net worth; and leaving a legacy.
“Our plans help clients set aspirational goals in key areas and map out the steps to reach them,” says Terry. “When it comes to ‘protecting what matters,’ it’s important to recognize that things can occur which may require adjustments to your plan: everything from health concerns, a change in employment, the birth of a child, or high inflation you didn’t expect can impact plans.”
Working with a trusted financial planner can help Canadians build these types of “what-if” scenarios into their plans. “Feeling confident that all contingencies have been considered helps our clients to consider adjustments, as required, and to feel better about how prepared they are for the future,” he says.
Recognizing financial blind spots
Behavioural finance is the study about how people make financial decisions, and it includes a recognition that people have certain tendencies or biases – “blind spots” – that may affect their ability to make decisions about money.
One of these blind spots is “sensitivity to noise” – the tendency to feel compelled to react if you receive negative information or information that makes you second guess your investment strategies.
“This blind spot is highly relevant at this time of rising inflation,” says Terry. “Individuals may hear bad news and feel they have to do something – even though it might not be the right decision. A planning professional can act as a sounding board for clients and coach them through a more objective assessment of next steps.”
Terry says using the services of professional financial planners is even more important in these times of uncertainty or when there’s a lot of noise in the market. Making decisions on your own, especially during volatile times, can lead to undue stress and unwanted outcomes. In fact, research shows that the majority of Canadians who don’t have a plan are not confident they will be able to reach their financial goals, but when they work with a financial planner, their belief grows.
“Professional financial planning can help create confidence for clients so they can achieve their goals and weather periods of uncertainty, regardless of what might be happening in the markets or with the economy.”
Want to learn more about financial planning with TD Wealth? Visit td.com/FinancialPlanning.
Advertising feature produced by Randall Anthony Communications with TD. The Globe’s editorial department was not involved.