In our society, the cost of goods and services has a tendency to increase every year. This is what we call
inflation. Inflation has a direct impact on your buying power. When prices increase, your buying power decreases. However, your buying power increases when prices decrease. To maintain your buying power, you must take inflation into consideration.
Inflation is usually measured using the consumer price index (CPI) set by Statistics Canada using a basket of consumer goods and services. The index allows us to analyze the evolution of the prices of goods and services by comparing then from one year to the next.
The following table shows the future cost of $10 000 in buying power, calculated using different inflation rates over three decades.
Cost of $10 000 in buying power according to inflation rates and the number of years
| Inflation rate | 10 years | 20 years | 30 years |
|---|
| 1.0% | $11 046 | $12 202 | $13 478 |
| 1.5% | $11 605 | $13 469 | $15 631 |
| 2.0% | $12 190 | $14 859 | $18 114 |
| 2.5% | $12 801 | $16 386 | $20 976 |
| 3.0% | $13 439 | $18 061 | $24 273 |
As a result, with a 2.0% inflation rate, if you spend $10 000 per year, making the same purchases in 10 years will cost you $12 190.
Generally, inflation varies between 1% and 3% per year. It was higher between 2021 and 2024. However, most specialists expect the annual inflation to decrease to 2.0%.
Annual indexation of the pensions under the Québec Pension Plan
When a value is adjusted according to an index or reference rate, it means that it is
indexed.
Pensions under the Québec Pension Plan (RRQ) are indexed in January of each year. This helps beneficiaries to maintain their buying power over the years.
To establish the indexation rate for pensions under the QPP, the average CPI is used for the 12-month period ending on 31 October of the previous year. The annual average (Québec Pension Plan's Pension Index) is then compared to the one from the previous 12 months.
For example, from 2023 to 2024, the Québec Pension Plan's Pension Index increased from 149.7 to 156.3. The Pension Index for 2024 was therefore 4.4% ([156.3 – 149.7] ÷ 149.7 = 4.4%).
Indexation rate of pensions under the Plan according to the year
| Year | Indexation rate |
|---|
| 2024 | 4.4% |
| 2023 | 6.5% |
| 2022 | 2.7% |
| 2021 | 1.0% |
| 2020 | 1.9% |
The annual indexation of pensions is provided for under the Act respecting the Québec Pension Plan. Even if the indexation rate is negative, the pension cannot decrease.
Summary
Inflation is a key factor to consider when planning your retirement withdrawal strategy. Part of your savings is protected: your pensions paid under the Old Age Security Program and the Québec Pension Plan, for example. As for the remainder, you have to plan enough savings to counter inflation and maintain your buying power.
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