Tag Archives: inflation

Budgeting for Retirement Requires a Good Estimate of My Personal Rate of Inflation for 2012

Posted on by

I find the rates of inflation quoted in financial plans for retirement fascinating. I remember in the late 1980s when they were estimating 10-15% rates of inflation. Now they tend to estimate 2 or 3% as the rate of inflation we should use for retirement planning.

The reality is that no one really knows. You have to pick a number out of a hat and use it.

However one number I can truly know is what my personal rate of inflation was for the previous year (2012.) Actually, since I track my expenses every year, I could figure it out for the last 13 years easily and for more with a bit of digging for an older file.

What Was My Personal Rate of Inflation for 2012?

There were a few surprises when I worked through it. The following are my rates of inflation on various goods and services:

  • Water 11.34%
  • Internet access 6.7%
  • Electricity 6.57%
  • Cable for TV 5.2%
  • Car 2 insurance 3.96%
  • Property taxes 2.1%
  • Telephone including long distance 1%
  • Car 1 insurance 0.7%
  • House insurance 0.1%
  • Natural gas -13.3%
  • Gasoline -38.1%

A bit of thinking led to the following interpretations:

Water rates went up to help fund waste water treatment. We only used 1 m3 more water despite the drought.

Electricity switched from a two-tiered pricing structure to time-of-use pricing in mid-year. Given the hot summer compared to 2011, it’s surprising our rate didn’t increase more. We did, however, only run the air conditioning after 7 p.m. and before 6 a.m.

The insurance increased on Car 2 because it is not the same car. It is now a 2012 to replace the former 2004.

Natural gas was much cheaper in 2012 due to shale gas production volumes. I went back and checked and the price is down 1% per m3. The bulk of the savings, though, was due to the extremely mild winter and therefore lower natural gas usage.

Gasoline was way down because we didn’t have 2 cars for 6 months, we only had 1. We also didn’t make a road trip to the Maritimes this year. The actual average price per litre was up for the year.

The Combined Rate of Inflation for 2012

Now the above figures are a good explanation for why percentages are not always reliable indicators. It’s very hard to look at those numbers and estimate our total inflation for 2012.

I did calculate the percentage increase in spending to pay for all of the above items, with gasoline included. Our rate of inflation was minus 3.1%. That’s right; we actually spent less on those items in 2012 than in 2011.

However, a more realistic rate of inflation took out the impact of the substantial savings for gasoline. When I recalculated without our gasoline costs, our personal inflation rate for 2012 was 1.6%.

That’s right, only 1.6%.

I was quite surprised. Admittedly, it would have been worse if we’d had 2 cars for the whole year and if the weather had been colder in the winter.

What Inflation Factor Do I Use to Plan for Retirement?

For retirement purposes, I usually assume inflation will be astronomical and investment returns will be pitiful. This gives me more incentive to save lots.

I doubt you can have too much money for retirement. Your heirs will love you if you can provide for your own needs in your old age. And your heirs will love you even more if you die prematurely and they get all the loot!

Further Reading

Join In
Do you ever calculate your personal rate of inflation? What was it for 2012? Please share your experiences with a comment.

The Secret Weapon of Stocks that Pay Dividends: Staying Power Support

Posted on by

Everyone has their own reason for buying dividend-paying stocks. Some investors buy dividend stocks for the income. Others buy them for the benefit of enrolling in a Dividend Reinvestment Plan. I buy them for various reasons, but for me one of their best benefits is their secret super-power: supporting willpower.

Bank of Nova Scotia, BNS, and the Best Benefit of a Strong Dividend for the Investor

A couple of years ago, I bought some stock in the Bank of Nova Scotia, often called ScotiaBank. It had room to increase its dividend and was already paying a pleasant 3.7% per share, miles above the rate then offered by GICs. Given that it is one of the “big 5” Canadian banks to many minds, including mine, it had about the same security as a GIC, admittedly without the benefit of CDIC backing.

Anyway, BNS had a minor pullback of about $5 so I gleefully logged on and bought some shares.

You’ve all read this book before: the stock promptly plummeted.

In fact, it fell as much as $12 a share during the course of its following rollercoaster value ride.

But each quarter, that handsome dividend popped into my account. And in fact, it grew. In the short time I’ve held the stock, the yield is now 3.81% based on the price I paid for the shares. UPDATE: Now it’s 4.1%!

Dividends Can Encourage Patience and Support Staying with a Stock

That steady, rising dividend provided me with the patience to stick with my purchase even through the dropping share price.

On paper, I had lost 20% (!) of my investment. If I had sold the BNS shares, that would have been a real, irretrievable loss. Since this investment was in a registered account, I could not even have claimed the loss against another capital gain to mitigate taxes. It would have been a real permanent loss.

However, bolstered by the dividend, I stuck to my investing plan. I still believe that the Bank of Nova Scotia was a decent investment at a decent price. I expect in the long term it will appreciate in value. And it was purchased as a long term investment.

Now, the price of Bank of Nova Scotia stock has gradually climbed back up to where I bought it. By not panicking and selling an investment I believed and believe has merit, I did not experience a capital loss. In fact, I am slightly ahead because of the dividend.

Staying with a Stock Should Depend on the Future Prospects for the Company

I’m not saying you should stay with every stock that plunges. Anyone who invested heavily in Yellow Media, YLO, knows that sometimes, no matter what the yield, you have to man the life rafts and watch it sink.

However, if you’ve looked again closely at what a company is doing, and maybe sounded out the opinions of others on the same stock, and you still believe the company is worthwhile then you may just need to grab your willpower and hold on.

Should You Only Invest in Dividend Paying Stocks?

No. I wouldn’t say that. I do think there’s nothing wrong with investing in only dividend stocks, but neither is there anything wrong with investing purely for capital gains. It depends on your investing goals, philosophy and style.

Stocks that Pay No Dividends Must Cover Inflation before Making a Profit

However, I will say it has been much harder to sit tight and wait for an investment in a resource stock to rebound. This stock does not pay any dividends. It has been caught, like most petroleum stocks, in the world-wide sine-wave cycle of oil consumption and prices. Just as Suncor and Imperial Oil have had their low spots in the past two years, so has this one.

I intend to hold and wait as I still believe the company is sound and it will rebound. But knowing that the money invested in that stock is stagnant, earning nothing while I wait, is annoying. Next time, I think I would probably not invest in a similar stock if it didn’t offer at least a small dividend.

As it stands right now, this stock has to rebound about 6% above what I purchased it at, just to cover off the cost of inflation since I bought it. The BNS stock, on the other hand, covered inflation with its dividend.

When Practical Buying for Capital Gains and Dividends Makes a Great Combo

Not every stock offers both the potential for capital gains and a good dividend.  But stocks that do offer both make a great combo deal. If you spot one, give it a really serious look. You might make a delicious little profit, with a side order of less stress!

Further Information
If you’re holding onto a dividend paying stock for the long term, you might also consider a dividend reinvestment plan. For more info, you may like to skim

Join In
Do you prefer to invest in stocks that pay a dividend? How much does the dividend help support your decision to hold on to the stock? Please share your experiences with a comment.