Our Longevity and Purchasing Power

In ancient Roman times, there was an elder by the name of Cato who said:

 Cessation of work is not accompanied by cessation of expenses

 This applies today even more so than it did back then. Even if you were a member of the wealthy class during Roman times, the average life expectancy was age 60. Now due to improved living conditions and the improvements of the modern medical system, a typical married couple, nonsmoking and retiring at the average US retirement age of 62, should be planning for a 3+ decade-long retirement.

This reality requires that pre-retirees and retirees understand this truth and develop an investment strategy based on that reality. Because in this new long-term retirement, it’s not just that expenses will continue to rise before you retire, it is also true that these expenses will continue to rise with the ever-increasing cost of living after you retire. This yearly purchasing power decline takes its toll over three decades.

Using the historic long term cost-of-living increase (inflation) of approximately 3%, one dollar of expenses will require $2.44 in 30 years at that same historic cost-of-living increase.  To state it another way, you would need almost $2.50 to purchase the same goods and services that you purchase in the first year for $1.00.

So holding on to that one dollar, trying to maintain your principal amount instead or attempting to maintain purchasing power as you enter retirement, could be a fatal mistake as you enter retirement.

One of the major reasons for this modern longevity was recently brought home for me. I had the opportunity to attend a Valley Hospital event last year at the Seasons restaurant in Washington Township. As a member of the Valley Hospital Financial Advisory Board, I had the pleasure of listening to Dr. Alex Zapolanski discuss the hospital’s fine cardiac department. While Dr. Zapolanski, M.D., F.A.C.C.  was passionately speaking about the procedures that he performs and the tremendous success of the facility, it highlighted for me why the longevity in the United States continues to increase.

These doctors, and doctors at other facilities across the nation, strive every day to improve their skills and knowledge to allow people to continue to live longer and be more productive. While everyone who survives these operations and their families are forever grateful, the need to provide retirement income for many more years needs to be planned for, especially with the earlier point of decreasing purchasing power.

A note on Valley Hospital and their Heart and Vascular Institute in Ridgewood, NJ:  The doctors and staff were understandably proud to be rated the number one hospital in New Jersey for Cardiac Services for 2013 for the 4th year in a row and rank among the nation’s best for overall Cardiac Services. In addition, the hospital was rated #1 for Interventional Procedures and Cardiac Surgery from HealthGrades. All who live in Bergen County and Northern NJ should be happy to live near a hospital of this caliber. To request a free heart screening, visit ValleyHealth.com/HeartScreening.

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About Dan Crimmins

Dan Crimmins, co-founder of Crimmins Wealth Management, is a financial coach and fee only financial planner. Have a financial question? ASK DAN

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