A healthy 70-year-old Canadian couple, with combined assets of $1.5 million in diversified investments and no defined benefit pension, is concerned about inflation eroding their purchasing power over a potentially long retirement. Which investment approach would be most effective in mitigating this longevity and inflation risk?

Question: A healthy 70-year-old Canadian couple, with combined assets of $1.5 million in diversified investments and no defined benefit pension, is concerned about inflation eroding their purchasing power over a potentially long retirement. Which investment approach would be most effective in mitigating this longevity and inflation risk?

Answer options:

• Shifting their entire portfolio to GICs for capital preservation. ✅ Investing a significant portion of their portfolio in inflation-indexed bonds and dividend-growth stocks.
• Aggressively increasing their withdrawals from their RRIFs to ensure higher current income.
• Purchasing a level payment life annuity for 100% of their investment portfolio.

Correct answer: Investing a significant portion of their portfolio in inflation-indexed bonds and dividend-growth stocks.

Explanation: Inflation-indexed bonds provide returns linked to inflation, preserving purchasing power. Dividend-growth stocks can offer increasing income over time, helping to combat rising costs. Blending these with other growth-oriented assets provides a balance between capital preservation and growth needed to combat inflation over an extended retirement.