Written by Eric Lee Thursday, 25 June 2009 00:00

Everywhere I go it seems I'm either asked: 'Have we seen the bottom in the stock market' or 'How long will it take for the market to recover?'

I'll be honest.  I don't know.  And nobody else does either, not that wild man screaming 'Booyah' on CNBC and not even the legendary Warren Buffet.

More importantly, I've made it a point always to remind myself not to be anywhere nearly as concerned with finding those kinds of answers, as with being as sure as possible that I am getting the key questions framed right.

On May 11, 2009, I was once again reminded of the more appropriate question for anyone that desires to endow a lifetime income from their investments with no compromise in lifestyle and no real concern about ever running out of money.

And the question is, 'Do I have a formal investment strategy, the goal of which is to allow my income potentially to triple during my retirement?'

Why on May 11, 2009?  Because on that day the price of a first class U.S. postage stamp rose $0.02 to $0.44.  To me, a 4.76% increase in a simple first class U.S. postage stamp signifies THE issue; indeed, THE crisis facing all those retired and planning to retire in America in the coming years.  We're facing a retirement income crisis.

By all historical standards America has experienced a mild and quite manageable inflation rate over the past thirty years.  But the real life implications of mild inflation are enormous.  Specifically, the price of a first class U.S. postage stamp has risen from $0.15 in May, 1979 to $0.44 today.  Under federal law, the price of a U.S. postage stamp cannot be raised faster than the Consumer Price Index measurement for inflation.  The price of an everyday postage stamp, and thus my proxy for the overall cost of living, has basically tripled in the past thirty years!  For those of you interested in the math, the postage rate has risen at an average rate of only 3.65% per year since 1979.

By the way, I won't accept the assertion that we're in a current period of deflation (falling prices) until the price of a postage stamp declines and employers can get away with reducing salaries across the board for their employees.  Despite the economic academics, I still say we're facing inflation when postage continues to rise as does the minimum wage.  But I digress.

The two most important things in a retired lifetime, and these have to be purchased everyday with your retirement income, are dignity and independence, as you define them.  The only rational goal of a retirement income portfolio is to produce a dollar amount of income that rises through the years at more or less the rate that the dollar cost of maintaining your lifestyle is increasing.  Only in that way can your income keep pace with your expenses.  And only that way can you be able to purchase dignity and independence in retirement, as you define those things.

The paradox for investors hoping to create an income from their investments for ten, twenty or possibly thirty years is that the interest rate on traditional fixed income investments, i.e. Bonds, Cds, and Fixed Annuities, cannot be expected to increase every year for the rest of one's life.  By definition, that's why they are called fixed income.

And, our Government has essentially just printed nearly $2 Trillion as part of the bailouts and economic stimulus.  All economic textbooks, common sense and even People magazine could tell us that printing this much money should be expected to cause substantial inflation, certainly inflation that is multiples of what we've experienced in recent history.  We'll see.

If so, yesterday's retirement income strategies are likely to be inadequate in the 'new normal' ahead.  We're about to come face to face with some of the monumental economic challenges we have ever encountered.  Our team is constantly thinking about the changing economic landscape and striving to help our clients live their life the best way they can.