Format for printing

See how the Cash Flow Statement includes columns for today and for three additional points in the future? Right now we assume Josh, the statement preparer in our example, is planning to retire at age 55. When he does:

• He and Millicent plan on some extensive trips in the first part of retirement (many, many retirees do).
  
  
• Then they will stay at home more in middle retirement.
  
  
• Towards the later years of retirement, at Josh's age 69, Josh and Millicent plan on entering a continuing care community to ensure they maintain a private home, but have access to various levels of long-term care services should those services be needed. (Besides, the facility offers multiple nights of Bingo.)

Many of you may not need or want such care at that age. In fact, you might be utterly outraged at the very idea! But hey -- it's better to err on the side of caution, right? Regardless, the important thing is to try to anticipate future expenses, and that is what Josh and Millicent have done in their Cash Flow Statement.

If you've kept up with us in the early part of the seminar, you've now looked at all of your expenses and estimated what they will be in the future, as expressed in today's dollars. Now let's talk about inflation. Everyone get out your balloons. (Just kidding.) Virtually every calculator you use will inflate these costs automatically, based on the inflation rate you select. So one big question is: What rate should you use? Well, the average annual inflation rate over the last 50 years has been 4%. The highest year came in at 13.3% in 1979, and the lowest was a negative one-half of one percent in 1950. Despite that wide range, both recent and historical economic trends suggest that a 4% inflation rate is a reasonable one to use.