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more, in retirement you'll no longer have deductions for your pension contribution and Social Security tax. Coupling those facts with the knowledge that some Social Security benefits may not be taxable leads to an inevitable conclusion—not bad, Dave, not bad at all."
Needless to say, I was thrilled with this news.
"You know what else, Roy?" I beamed, making no at-tempt to hide my enthusiasm. "My pension income is guaranteed to increase by three percent each year. Indexing, I think they call it."
"Precisely," Roy confirmed. "Indexing is certainly an-other fine, and I should add rare, pension feature. Most aren't indexed and won't increase each year to either fully or partially offset the impact of inflation.
"As I pointed out earlier," Roy continued, "inflation is most pensioners' number one enemy. A non-indexed pen-sion's purchasing power dwindles with startling speed. Even a partially indexed pension like yours, Dave, capped at three percent, can be overwhelmed by an extended period of high inflation like we saw in the early eighties."
I should have known that the string of good news couldn't go on forever.
"So what you're saying," I attempted to summarize, "is that even someone like me, who has a generous retirement program, should do some additional saving. One: to make up for the shortfall between my last working year's after-tax income and the after-tax retirement income provided by my retirement program and Social Security. And two: to help offset the ravages of inflation."
To say that this was the most insightful thought of my financial career would be a gross understatement. Even Roy looked shocked.