Excerpt from The Total Package, Chapter 6

In the 21st century, Americans will live much longer than in previous centuries. According to the Administration on Aging (Ticker, March 1999), about 70 million people over age 65 will be living in the United States by 2030. That’s more than twice the number of those age 65 and over living in the U.S. in 1997. The number of Americans living to age 100 has doubled every decade since 1950. According to Nationwide Life Insurance Company, for couples reaching age 65, there is a 94% chance one will live past 80 and a 63% chance of one living past 90.

Since there is a good chance that you (and your spouse, if you’re married) will live longer than you ever imagined, your money will have to last longer, too. That means adopting a long-term view of your finances and developing investing strategies. One of the biggest mistakes people make while planning for retirement is underestimating how long they will live.

—The Damaging Effects of Inflation—

Along with a greater probability of living longer (and, we hope, in excellent health), a major obstacle to a financially secure retirement is inflation. Inflation has the effect of squeezing your retirement assets over time. If you can remember back to the early 1980s, you may recall interest rates approaching 20%. While inflation rates are substantially below that now, inflation, like trends in the economy, tends to move in a cycle. Therefore, don’t assume that today’s low inflation rates will continue forever..

The rising cost of health care is an excellent example of how damaging inflation can be over time. In the 20-year period from 1980 until 2000, health care costs rose 257%, a 12.85% average annual increase. During the same period, inflation as measured by the Consumer Price Index (CPI) increased by 118%, an average annual increase of 5.9% (Bureau of Labor Statistics, U.S. Department of Labor, June, 2001). Inflation is constantly eroding your buying power and may ultimately harm your retirement lifestyle. Consider that if you earned $50,000 per year in 1980, in order to have merely kept pace with inflation, in 2000 you would need to have earned $157,358!

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