How will inflation and negative returns impact my retirement plan?

When prices for everyday essentials rise faster than your income, your purchasing power shrinks, and the comfortable retirement you planned for can feel increasingly out of reach. This is especially true for retirees living on fixed or semi-fixed incomes. The good news? You're not powerless. By understanding how inflation affects your portfolio and exploring strategic investment approaches, you can take steps to help ensure your retirement income keeps pace with rising costs.

Inflation and your retirement plan

Put simply, inflation is a measure of the rate of rising prices for goods and services over time. Inflation can happen because of price increases in production costs or other reasons. For example, in April 2026, Canadian gas prices were up 28.6% from the year prior.¹ Price jumps like this can be quite sharp at times and affect your cash flow despite consumption habits that may stay the same.

Retirement portfolios are no exception. So, it makes sense that retirees are affected differently by inflation based on their lifestyle, spending habits and how their money is saved and/or invested.

How inflation could impact your retirement income

• The cost of your expenses may rise faster than your fixed income can keep pace with.
• You may deplete your savings at a faster rate than anticipated – especially if your spending is higher than planned.

How can you manage inflation risk when it comes to your retirement plan?

If you’re not retired yet, the first step is to plan ahead. Work with an advisor to account for inflation and ensure that your plan may be built to deliver income that may increase over time to help your income keep pace with inflation.

If you’re already retired, try to resist the urge to get out of the market. Staying invested can be a prudent way to hedge against inflation. Time in the market is more important than timing the market.

During periods of inflation, some industries have tended to perform better. While sectors like consumer discretionary and technology often performed poorly, consumer staples and utilities have tended to outperform. With rising costs, some companies may be able to raise their prices to reflect higher costs, and this could lead to higher earnings. Therefore, choosing investment solutions where active managers take those factors into account may bode well.

Investing strategically and for growth could help

Investment solutions focused on equities historically have tended to provide returns higher than the rate of inflation.² If, for example, the equity portion of a portfolio returned 9%, but the inflation rate was 3%, the return would be 6% above the inflation rate. Retirees may, therefore, want to consider a strategy that invests some assets in growth-oriented investment solutions to offset the effects of inflation.

Consider assets with inflation-hedging properties

When inflation is high, investment managers may invest in specific asset classes like infrastructure and real estate that have traditionally performed well in an inflationary environment. Within Sun Life Granite Managed Solutions, the Sun Life Global Investments Multi-Asset Solutions Team uses tactical asset allocation as a key active management tool. This allows the team to make short-term adjustments to help manage risk and capture opportunities when market events – like periods of high inflation – shift the risk/reward outlook for certain asset classes relative to longer-term expectations.

Segregated fund contracts have advantages that may help keep your retirement plan on track

Segregated funds, like mutual funds and actively managed ETFs, pool investors’ money in professionally managed diversified funds. Unlike mutual funds and actively managed ETFs, segregated fund contracts offer certain insurance guarantees that can protect a portion of your initial investment in the form of death benefit and maturity guarantees. Further, Sun GIF Solutions from Sun Life Global Investments can provide lifetime guaranteed income if you choose this option. To learn more about Sun Life Global Investments suite of segregated fund products, please visit our website.

Inflation will affect you whether you are a pre-retiree or if you’ve already transitioned to retirement. A variety of options exist to help mitigate the impact of higher prices and keep your retirement plan on track – even if inflation rates rise. Speak to your advisor today to learn more.