We have all adjusted our lifestyles to reflect the current economic climate. If we had not, then inventories would not have been worn down, layoffs would not have occurred and prices for goods and services would not appear as stable as they are today. Lack of spending reduces demand, which reduces inventory, employment, inflation, etc. If you wrote a retirement plan for a client in 2006, did you allow for a reduction in expenses for 2009?
Did you reduce or increase their expenses in any year? How about on a decade basis? Did you increase their expenses for any year? How about for their 50th anniversary cruise? Certainly you increased their income when their mortgage was paid off, but did you include gifts for the unborn grandchildren? Of course not! How could you have done any of these — save perhaps for the mortgage — without a crystal ball to look into the future?
In Part 2 of this article, we’ll explore how to apply life expectancies and other factors when designing a client’s retirement plan.
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