all provide opportunities to reduce the impact of taxes on wealth accumulation. An important aspect of managing wealth for individuals is to make optimal use of these options. These options are very different from traded options in that they are not priced. They are free. The government put the options into the tax code. Making good use of them can risklessly enhance the after-tax accumulation of wealth. INFLATION Inflation is an important consideration. Money is given to future beneficiaries for a reason. The hope is that a bequest will help heirs to buy a home, pay for grandchildren's education, purchase cars, and so on. Likewise, the hope is that charitable beneficiaries can use the gift to purchase goods and services in pursuit of their objectives. Inflation relentlessly reduces the amount of homes, education, and other goods and services that an estate can provide. Further, spending requirements are likely to rise over time with inflation and will thus claim an increasing proportion of an estate that fails to grow at the rate of inflation. Inflation is a silent destroyer of wealth. Its impact is never listed on brokerage statements, investment reports, or tax returns. Nevertheless, it has reduced the value of estates by an average of 3.0 percent per year since 1925. There have been periods when inflation has been much higher. Inflation averaged 7.3 percent per year during the 1970s. More recently, inflation averaged 2.9 percent during the 1990s. This is considered to be benign, yet, even at these levels, the purchasing power of a dollar is reduced by almost 40 percent over 20 years' time. Today's 3.0 percent expected inflation exceeds the after-tax return currently offered by many bonds and money market securities. A negative real return does not serve the goal of preserving and growing the real value of an estate. In the next chapter we will see how "safe" investments such as Treasury bills have rarely provided a positive real after-tax return. Inflation affects investment planning in two ways. The first is obvious. Inflation reduces the real value of future dollars. The second is that inflation affects future spending requirements. An investor who currently withdraws a fixed amount from his portfolio to meet his annual spending needs should expect that this amount will grow with the rate of inflation, all other things being equal. This introduces a new risk. Unexpected inflation tends to reduce the market value of financial instruments while at the same time increasing spending requirements. This combination can increase spending as a percentage of the portfolio's value. A spending policy that had seemed reasonable could become unsustainable. SPENDING Some investors use their financial assets to fund their living expenses, while others can use ongoing employment income. Spending requirements have an impact similar to inflation and taxation in that they detract from the preservation and