Choppy economic waters are rocking the retirement boat forcing an ever increasing number of Canadian retirees to return to the workforce. And a higher-than-expected inflation rate of 3.3%, as reported by Statistics Canada, doesn’t help matters.
A recent RBC poll found that in the past 12 months 41% retirees returned to work in 2011 compared to 32% in 2010. Canadian retirees clearly need to take measures to manage inflation and negotiate life’s unforeseeable twists.
This is where financial advice can ensure all aspects of retirement are explored, including the unexpected, said Lee Anne Davies, head, retirement strategies with RBC.
“We’re finding that even Canadians who think they are well-prepared for their retirement years have not taken the unexpected into consideration,” she said. “We always make sure our clients take inflation into consideration when planning retrained, especially because this has been such an extended period of low inflation.”
Davies added, in retirement, clients are likely to need some services and products that they didn’t need prior to retirement, “which could be subject to an even higher rate of inflation than the overall inflation rate.”
A financial plan must, therefore, consider overall inflation rate and must apply a greater inflation rate for such specific items as personal care products and home maintenance services.
A majority of retirees (69%) said they’d make lifestyle adjustments as necessary to keep pace with inflation throughout their retirement. Not the easiest thing to do, says Davies. “That becomes quite a concern from our perspective, because as you move deeper into retirement you might need certain services and you can’t adjust your lifestyle,” she said.
Davies concedes these retirees are putting themselves at some degree of risk because they are “entering into the unknown without a plan to support an inflation change and without an insight as to whether or not you’re going to be able to change your lifestyle.”
People need to change some spending habits or accept the inevitable—higher prices,” said Richard Knowles, financial planner, with R. Knowles & Associates in Vancouver.
The latest inflation figures from Statistics Canada show that the largest portions of the CPI index that have been affected are commodities and gas and energy.
Knowles takes a rather unconventional approach to tackle inflation in these areas. Do as farmers do and hedge against it, he says.
“People can offset that change with investment in the areas expected to increase,” he said. “This is real futures hedging and what wheat farmers and commodities farmers actually do to hedge in price losses due to crop and animal husbandry failures and the basis for all futures trading done today by investors (but for other reasons of course).”
By investing in such items, gains in investment can offset losses in the real cost borne in life, he added.