2022 June Update
Inflation. It’s something we haven’t experienced, collectively, on a grand scale for quite a long time. Many of the planners on our team can only vaguely remember the ’80s (because we were children, not because we have memory loss), and certainly something like high levels of inflation seem very, very new to most of Canada.
As you may have read, recent reports indicate that Canada’s inflation rate rose to 6.8% in April of 2022. You’ve likely experienced the impact of rising costs in all the places it really hurts, like food, gasoline, and travel. Wasn’t it nice to imagine so much more travel this year, right before you opened up those airline cost estimates?
If you’ve been planning with us through Spring Plans, or through any of our legacy businesses which had provided similar services before we merged, you may have noted that this 6.8% number is much, much higher than the number used for inflation in your plan. Trust us, there’s no place you would have gone in the last 10 years that would have used a rocketship number anywhere close to 6.8% in a financial plan.
Even this year, when our governing body, FP Canada, released their recommendations for rates to use in financial plans, they still were far below what we’re currently experiencing, at only 2.1%.
Why would they do this, given what we know about current inflation?
Well, if you decided to read that whole link above (we don’t blame you if you didn’t), you would find that they used an average of assumptions for the foregoing 30 years in the most recent actuarial report provided by Canada Pension Plan, the results of a survey last year, and the current Bank of Canada target inflation rate – then rounded to the nearest 0.10%.
Basically, this means they’re doing their best to look far into the future and make a guess at what might happen in the next 30 years, on average – not what is going to happen in the next 12 months.
This is not particularly different from the estimates used for growth in your real estate or investment portfolio. There are some years that are just flat-out dumpster fires, with negative return rates. There are some years that bring outstanding, double-digit returns. We know, through experience, that this isn’t going to carry through every year for the rest of our lives. It’s temporary and either incredibly exciting or incredibly frustrating, but we know it’ll happen. We’re not counting on the highest of highs nor the lowest of lows to continue indefinitely. We know that what is happening right now is not going to happen forever.
Despite the fact that inflationary increases like this haven’t happened in our country for a long, long time, the same holds true. Inflation rates are high right now. That may carry on for a little bit, while cooling activities like interest rate increases take place, supply chain issues get sorted, and labour markets return to something resembling “normal” – or at least, manageable.
We don’t want to change our planning estimates to reflect current inflation conditions any more than we would want to change them to reflect current real estate or investment market conditions. However, in both cases, we need to make incremental tweaks to our individual approaches to money.
When it comes to market downturns, if you’re not yet drawing from your portfolio or selling your real estate, you’re probably not all that fussed about it. You’ll keep investing while prices are low so that you can benefit from gains. You’ll take the advice of your professional investment team, and you’ll stay the course. If you are drawing from your investment nest egg, you’re drawing from the cash, liquid, and guaranteed portions (sometimes called the “cash wedge”) of your portfolio, allowing your equity investments to recover. We are a little more used to that.
Your approach to inflationary change is similar, but different. You’re either being paid, paying yourself, or drawing an income that’s in a particular range. That income isn’t going up and down with the rising and ebbing tide of inflation; it’s likely staying fairly static.
Your personal inflationary changes are not the exact same as the inflationary changes being demonstrated in news and actuarial reports. Your first course of action is to determine what has changed for you. Your spending might be in areas of high inflation, so the 6.8% seen in April reports might be low compared to what your regular lifestyle is costing. Your spending might be in areas with low or no inflation, so the reports might be high compared to what you’re experiencing.
We recommend getting to know your personal inflation rate. Understand how changes in the outside world have impacted your inside world. Get into your numbers about once a month (more than this might be a little much, though), and understand how things have changed for you personally, not just looking at the changes in the media.
Look ahead at the things you want to do – especially in the summer, when spending can skew higher than usual. Consider how the changes in costs for just about everything are going to impact your decisions. Give real thought, ahead of time, to what types of activities are going to bring you the maximum joy. Rank them in order, and then, when you look at the money you have in your hands to spend, allocate appropriately. You might find you’ve been spending a bit freely in areas that are nice to have but possibly not that important to you, and that cutting down so you can spend more in an area that is important to you is easy. You might find that you have to cut back even on things that mean a lot to you, so you will have to tighten up your definitions of joy, and what that experience means.
Tweaking for reality is a big part of financial planning. You’ve got some decent guidelines, structures, and tools to make great decisions, but since we know the world is constantly changing, it’s important that we change with the world. Revisit your plan(s). Reimagine your life, in the world as it is right now – and keep creating your life, well spent.
We’ll be here for you the whole way through.
If you’ve been working with us for any length of time, you’re familiar with Lindsay. Lindsay has been with us since before the beginning, since she was Julia’s executive assistant back in the JYC Financial days. Lindsay has now transitioned to an excellent opportunity outside of Spring and while we cried real tears when she told us, we are so happy for her that she’s progressing in her career.
Lindsay has been sticking around for us since her announcement (thank goodness!), helping out while the Admin Slayer team provided back up support, waiting for us to find our new full-time support system. We can’t tell you how much it means to us that all of these amazing slayers have had our back during this tough time trying to find a new team member who would provide the high level service you’ve come to expect from Spring.
We’re so pleased to announce that Erika has now joined our team!!! Erika has a long history of working professionally within confidential, high-pressure environments. Her background in communications and project management is going to be so incredibly valuable to the Spring team. Thanks for joining us Erika, and thank you, Lindsay and the team from Admin Slayer (Kristen, Christina, Sam, and Jayne) for supporting us through this transition.
Don’t worry; any emails you might send to Lindsay will be managed expertly by Erika ([email protected]). We are hopeful that you will find this transition entirely seamless.
“Free” Fridays remain booked permanently in our calendars. These days are free to us at Spring in the sense that they are our opportunity to work on becoming better planners, whether through collaboration and discussion, education, research, or even a little down time. It’s been a regular practice since the summer of 2017, and we will continue to set aside the time to become better versions of ourselves every week. Even 1% better is solidly worth it, because we know that will be reflected in the work we do for you.
All team members will be stepping away from our computers on July 1st, 2022. Julia and Sandi will both be on holiday starting Friday, July 22nd, returning on Tuesday, August 9th. We expect Darryl and Kathryn to take much-needed time off as well but as of the date of this publication, we haven’t confirmed dates!
Spring in the News:
Adjusting to Retirement – Forum Magazine (Page 12 -17) Julia shared some of her thoughts about decision making, retirement, and how the psychological adjustment to the next chapter of your life is bigger than finances.
In early June, Julia hosted a fireside chat with the winners of the regional and national Family Enterprise of the Year Awards, presented by Family Enterprise Canada. Know a worthy family for the 2022 awards? Nominate them here.
Julia also participated in a panel discussion at the Globe and Mail: Money Matters event on June 20, discussing “income endurance” with several industry specialists. If we get any pictures or video, we’ll share those with you!
Planning News Digest:
Our friend Leah Goard came up with this easy and effective way to plan your next few months so that you get to live your best life this summer, as free from regret as possible.
Stephen Dubner (Freakonomics) and Angela Duckworth (Grit) discuss retirement, cognitive decline, and health in a fun and conversational 30 minutes you can listen to while you’re doing other things.
Choosing an investment manager is hard work, and many people go with their gut. We prefer an approach that takes into account quantitative and qualitative measures. Learn more about what that means in this article, and connect with us to have a chat with our in-house Chartered Financial Analyst, Darryl Brown.
It’s hard to know how to help when times are tough for others. What makes the most sense? What rules or parameters do we place on this help? Our friends at Karma & Cents provide some great ideas about how you can help support Ukrainians through the current crisis.
Feature from the Archives:
Creating an education strategy can be a daunting task. From planning pre-school to post secondary, we are showing you how to use your values in the education strategy process. Read more.
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