Saturday, May 18th, 2024

Inflation: A Stealth Tax on Wealth

In 1992 a first class postage stamp such as the one shown of renowned lumberjack Jos Montferrand was only 42 cents. Retirement for a typical couple lasts 30 years.  Did the cost of living rise during the next 30 years – even a little?  Just maybe it has.

Consider this: in 2022 you pay 92 cents plus GST for the stamp showing Christopher Plummer! The cost of an everyday item rose by over 100% in 30 years, clearly illustrating how inflation, the rising cost of living, has eroded the value of money.

Message: if your investment return does not exceed inflation by a wide margin, then although you may have more dollars those dollars will buy less for you.

In order to determine the true return on your investment you must calculate the combined effects of income tax and inflation. This tells you what is left after the taxman and the rising cost of living have done their damage to your money. An excellent financial advisor always focuses on the after tax and inflation return and explains why this is important to your personal financial plan. Click here to use the Bank of Canada’s inflation calculator and compare the cost of a basket of goods from now to a past year, all the way back to 1914.  Does it make sense to invest for a fixed income in a rising cost world? I certainly can’t believe so. The fixed income retirement investor is about as reckless as anyone could be.