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rob carrick

The financially frail senior on a fixed income is a stereotype ready for retirement.

A significant part of your income can be inflation-protected in one way or another when you're retired, which is to say it's not fixed at all.

Plenty of Canadians in the work force are living on a fixed income. They're the ones who work for government agencies or companies that have frozen wages for their employees in a slow economy. Try raising kids and maintaining a home when your wages are flat for years on end.

Income for seniors comes from the following components – the Canada Pension Plan, Old Age Security (including the Guaranteed Income Supplement), workplace pensions and personal savings. Each in its way can offer some degree of protection against the rising cost of living.

Canada Pension Plan payments are adjusted for inflation once annually using Statistics Canada's consumer price index. For 2017, the increase was 1.4 per cent on a retirement pension that now tops out at $1,114.17 a month. The most recent year-over-year inflation rate was 1 per cent.

OAS and GIS payments are calculated quarterly to ensure benefits keep pace with inflation. OAS payments were set at $583.74 for July, which reflects an increase of 0.9 per cent over the $578.53 payment in the first and second quarter of the year.

People receiving payments from a defined-benefit (DB) pension plan offered through a government job often have built-in inflation protection, while a minority of private-sector plan members have this benefit. DB pensions are mostly just a rumour for young people entering the work force today. But the career years for seniors were spent in a time when these premium pensions (payments for life) were more common.

Despite a growing population, the number of employees in a DB plan fell 8.3 per cent between 1992 and 2014, the most recent year for which there's data. More than 90 per cent of pension plan members were in a DB plan back in the 1980s, compared with 70 per cent in 2014.

The classic fixed income is the one provided by safe investments such as guaranteed investment certificates and bonds. But while some seniors do rely heavily on these products, it's incorrect to stereotype this entire demographic as conservative investors who are prisoners of low rates. Despite higher risk levels, seniors have been driven by low interest rates into holding more stocks, notably dividend stocks.

The Canadian stock market has produced annualized total returns – share price changes plus dividends – of 8.7 per cent over the five years to midyear. There used to be a rule that seniors should restrict their holdings in stocks to a percentage based on 100 minus their age. Today, with people living longer, there's a view that the correct number is 110 or even 120 minus your age.

Dividends have become hugely popular with seniors, largely because you can find dividend yields from blue-chip companies that are double or even triple the inflation rate. The best dividend stocks are true inflation fighters because they increase their payouts to shareholders every year.

Canadian National Railway, Alimentation Couche-Tard, Metro Inc., Canadian Tire Corp., Suncor Energy, Telus Corp. and Toronto-Dominion Bank are examples of companies that have increased their dividends by at least 10 per cent on an annualized basis over the past five years. Inflation averaged just 1.3 per cent over that period.

About that inflation rate – some people, seniors among then, dispute it on the basis that it undersells increases in their cost of living. Even if you're not on a fixed income, you might feel that way if your income lags inflation.

It may not reflect precisely what's happening in any one individual's life, but Statistics Canada's consumer price index does represent this federal agency's best effort to measure what's happening to prices for a diversified basket of goods and services. Until replaced with something better, it's our definitive inflation indicator of what's happening broadly with prices.

One way in which seniors' income truly is fixed is in that they're not able to benefit from instant income boosts from promotions, bonuses and pay raises over the inflation rate. If it's any solace to seniors, these kinds of wage windfalls are rare today. A flaw in the Bank of Canada's case for raising interest rates earlier this month was weak wage growth for workers. If you're a senior with what feels like a fixed income, you've got company.

Larry Moser of BMO InvestorLine says retirees who are 'house rich and cash poor' may seek a loan for travel and other expenses. Moser looks at the safest ways to borrow money in retirement.

The Canadian Press