In a perfect world, we would know the total amount of assets needed for a predetermined standard of living during retirement years. That "total amount of assets" could then be reduced by the accumulated value of our employers' retirement plans and Social Security benefits to identify the amount of personal savings necessary during our working years.

If planning for financial security during retirement years were only that simple-which, of course, it isn't. First, there are several fundamental variables we generally can't predict, including the number of years we will spend in retirement (e.g. date of death) and inflation during those years. Second, a lot of us find it very hard to actually "save," either due to basic cost-of-living needs or due to a lack of discipline.

Whereas others approach their presentation regarding this subject by illuminating "income replacement at the time of retirement," I prefer to concentrate on "assets needed during retirement years." In my opinion, it is far more important to develop an appreciation for the total funds needed to sustain someone throughout many years of anticipated retirement, rather than income needs at the time of retirement. Just considering how inflation erodes the purchasing power of the dollar demonstrates that during the later years of retirement, "income" needs are likely to exceed income at the start of retirement. (Assuming a 4 percent average annual rate of inflation, $40,000 today will only have the purchasing power of approximately $27,000 in ten years.) Even with the relative low inflation rates of the last couple of years, there are an increasing number of senior citizens who proclaim that their fixed retirement income no longer covers basic living needs. One expression of this problem is the strong lobby to include prescription drugs in Medicare coverage.
This inflation issue becomes even more pronounced with the real prospect that we will live for a longer period during retirement, with a higher quality of life. We can credit advances in early diagnosis and treatment of many medical problems, that otherwise would result in a shorter life, for extending our life expectancy by a significant number of years. (Current life expectancy at age 65 is generally 20 to 25 years.)

All around us are medical initiatives with the potential of further extending life expectancy. The Wall Street Journal recently reported that Celerea Genomics Group and a federal project have separately made major progress in deciphering the entire human genetic blueprint. Scientists associated with these projects predict that information regarding the human genome will be useful to pharmaceutical companies and research laboratories in developing medical advances that will prevent and treat a broad range of medical problems.

Closer to "home" is significant medical research at Indiana University, such as groundbreaking cancer research at the IU School of Medicine. This research has developed new treatments, including gene therapies for bone marrow diseases such as leukemia and treatment for testicular cancer.

Accompanying longevity is, of course, an increase in the total personal consumption of resources (I.e. general living and health-care expenses). In other words, we will need to accumulate more funds to pay for expenses during an increasing number of retirement years. Contemplating the need for an unknown amount of assets during retirement years should motivate us on a personal level to take advantage of savings opportunities earlier in our careers. Even in times of "economic growth," as is being reported today, we need to save for the resources to be consumed during many years of retirement.