Inflation adds uncertainty to financial future

With inflation reaching the highest levels in the past 30 years, Canadians trying to refocus on their financial future now face a new uncertainty: the effects of rising inflation on their retirement savings.

According to RBC’s annual Financial Independence in Retirement Poll, inflation has now moved into the top three concerns Canadians have about retirement for the first time in more than a decade.

Inflation is also limiting the ability of Canadians to increase any savings, as it continues to drive up the costs of fixed expenses – a key savings barrier referenced by 29 per cent of poll respondents, with the largest number of these (40 per cent) being aged 25 to 34. A majority (85 per cent) of this younger age group also worries the most about trying to balance saving for today versus saving for their future.

There is a key difference across all age groups, however, despite the uncertainties posed by the pandemic and rising inflation. Today, almost half (48 per cent) of Canadians have a financial plan and the majority (86 per cent) of those say they are feeling positive about their financial future because of that plan.

“The unexpected has changed lives over the past two years, but if you have a plan,
it’s easier to adapt to those changes,” says Stuart Gray, Director – Financial Planning
Centre of Expertise, RBC. “A plan helps you keep on top of your finances, so you know
what adjustments you can make for changing circumstances while saving for today
and investing for the future.”

One strong indicator that Canadians want to refocus on their financial future: RRSPs are making a big comeback. After seven years of trending downward – and last year’s historic low of 46 per cent – RRSPs have rebounded and now over half (53 per cent) of Canadians have RRSPs in place to save and invest for their retirement. Also, within those RRSPs, more Canadians are holding mutual funds (36 per cent vs. 30 per cent last year), stocks (20 per cent vs. 14 per cent) and ETFs (11 per cent vs. 7 per cent).

Another future-focused indication in poll findings: the percentage of Canadians who are building their investment portfolios has risen to 28 per cent from 25 per cent last year (and 10 points higher than a decade ago). Of particular note, younger investors aged 25 to 34 are also expressing the most interest in building these portfolios (32 per cent). Since the onset of the pandemic, these younger investors are also focusing more attention on the value of their investments (22 per cent) and almost half (48 per cent) indicate they are willing to pay fees if this offers the opportunity to gain higher returns on those investments.

“When assessing value, investment performance  after fees is what really matters. It’s encouraging to see that younger Canadians understand how crucial this is in achieving your retirement savings goals and building a strong financial future,” adds Gray.