Picture this. You are 65 years-old and have just set sail for retirement bliss. You have worked and saved in the American tradition of providing for ones' own future and family. You've seen bear markets, bull markets, high inflation, low inflation, mortgages of 15% and 5%, and college costs that took your breath away. You have seen it all and throughout, you kept plugging away, adding to the nest egg.
Now you're mostly out of the stock market and are planning to live off the interest of your bond portfolio and pension. Hoping for the best, you think the lifestyle you've become accustomed to will stay the same through all the cruises, trips, and leisurely afternoons to come. Medicine's quest for the key to unlock old age is lengthening our lives at a rate hard to be believed. According to the National Institute on Aging, the fastest growing segment of the American population are people 85 years-old and above. Compare that to the turn of the century when life expectancy was about age 47.
What this means is that inflation has an ever increasing time span to wreak havoc on our golden years. For example, assuming an inflation rate of 4%, (it's been as high as 11%-14% during the Carter presidency), a dollar's purchasing power is drastically diminished over the possible 20 years of retirement. What a dollar buys today will only buy 46 cents worth 20 years from now. That $100,000 of income today will feel like $46,000. The fear of running out of money is palpable. Instead of traveling to Ireland for golf, now are now playing on the public course down the street. More early bird specials, and fewer cruises. As much as you would like to help out the kids and grandkids with gifts for a down payment on a home or help with schooling, the reality is you can't. It's a much different reality than what you expected when you started working 40 years ago. Fortunately, we have a choice in how we plan our financial lives.
Picture this. Yearly trips and cruises, a vacation home at the beach, annual gifts to the kids to help them on their way, and giving to charities that are special to us and more. You have feelings of abundance, generosity and flexibility. You can spend and enjoy your wealth with greater abandon and without fear of running out of money. You could live off interest as well as principal, and in the process substantially improve your lifestyle. You can now use other strategies such as pension maximization and reverse mortgage to further enhance your life. Now you are keeping pace with inflation and possibly pulling into the lead! How can this be possible assuming we are talking about the exact same person? The truth is that life can be this way and it can be this way for you! The key is engineering this to take place with our financial resources.