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Choppy economic waters are rocking the retirement boat forcing an ever increasing number of Canadian retirees to return to the workforce.

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 of retirement strategies, 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 that 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, but that's easier said than done.

"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," Davies 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 any insight as to whether or not they're going to be able to change your lifestyle."

The survey found that as many as 35% of retired people have invested with inflation in mind. This, she says, provides professional retirement planners an opportunity to remind their clients they're not going to use all their retirement money on the day of retirement and that it's alright to take some degree of risk that they are comfortable with.

"People need to change some spending habits or accept the inevitable higher prices," said Richard Knowles, financial planner, 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: follow the lead of farmers and hedge against it.

"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; its the basis for all futures trading done today by investors."

By investing in such items, investment gains can offset rising costs in life, he added.

Knowles has some practical ideas to invest in as well. "Fixed income earners don't weather increases well so, by changing a few things in their lives, smarter decisions can add to a better quality of life. Indeed we all can add balance and value by following some simple steps daily."

Finally, some interesting cost-cutting measures to consider. "Have more dinner parties in, and cook at home with some quality wine bought wisely," said Knowles. Shopping wisely and comparison shopping is a must. "The consumer is king—act like it."

Originally published on Advisor.ca

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