Planning for Retirement

 

I'm afraid we can't say the same for the cost of living. As many retirees will confirm, this is no small problem. Your purchasing power can be slowly eaten away until, even though you're bringing in about the same after-tax income as during your last working year, your purchasing power has been significantly eroded. That's trouble. Big trouble. Inflation is a retiree's number one enemy. The absolute amount of your income is not the key—it's what you can buy with that income that counts."

"Meaning?" Cathy prodded.

"Meaning," Roy responded, "that having not only enough to spin off the desired annual income in retirement, but also enough extra to offset inflation's impact, is imperative—and is going to necessitate saving a great deal of money."

"That makes Tom's 'feasibility question,' as you called it, even more relevant," I offered, trying not to sound as panicky as I felt.

"The need to accumulate substantial savings for your retirement may seem intimidating, but it really isn't. Re-member, you three have discovered the magic of compound interest. Once again, this time within various retirement plans, it's going to be our best friend. That shouldn't surprise you. But what might surprise you is the identity of another helpful new friend: the government."

"The government is no friend of mine, Roy," Tom scoffed. "I give it a hefty portion of everything I make, and in return, it loses my mail."

"In the case of a variety of different retirement savings vehicles, it really is your friend," Roy assured him. "As you'll see in a minute, the government often subsidizes your contributions to these plans and, perhaps even more