A map first published in Harper’s Weekly in 1877 has hung in my office and fascinated visitors for more than 30 years. Its focal point is the Black Sea, the mountains and valleys that surround it, the rivers Dneiper and Danube that run through it, and the narrow straits passing Bosporus on the Black Sea through the Sea of Marmora and then past Gallipoli and the Dardenelles into the Mediterranean. From Vienna and Krakow in the northwest to Damascus, Aleppo and Baghdad in the southeast, geography and world history are on dramatic display.
Those place names recall events from history. The Fertile Crescent where fig trees were first farmed more than 11,000 years ago stretched from Baghdad northwest to Aleppo and Damascus and south to Cairo and the upper Nile. Failed decisions besmirched Winston Churchill’s reputation at Gallipoli in World War I. The enormous, kidney shaped Black Sea, Russia’s only southern access to the Mediterranean, remains historically strategic to this day.
Attached by a thin umbilical cord of land to the northern shore of the Black Sea is the Crimean Peninsula. Although the peninsula has been the fulcrum around which world powers have fought for centuries, it is perhaps best known as the namesake of a war fought during the 1850’s pitting Britain, France and the remnants of the fading Ottoman Empire against Russia and its Balkan allies: the Crimean War.
Throughout the years I have described the map as depicting the events of the Crimean War despite a nagging concern that the date of publication did not match the Crimean War. Only recently did I realize the map covers the less familiar Russo-Turkish War of the late 1870’s in which Russia recovered much of its strategic influence lost in the Crimean War. Lesson learned, get your facts straight or you’ll end up fighting the wrong war.
I bring this up because maps are such useful tools, but only if they accurately depict space and time. For several decades we have analogized financial plans to retirement road maps, a tool to help investors navigate from the financial present to a financial future free of worry. However, just as road maps change over the years, with new freeways and housing tracts paving over agricultural acres, financial plans change as well. Where once we were pleased to plan our children’s education, now we realize our grandchildren may need help as well. Where once we may have been secure that a certain size nest egg would provide all our retirement needs, now we face significantly increased medical costs and inflation driven standards of living.
A financial plan, just like a map, is only of value if it depicts current reality, not the one from ten or twenty years ago.
As many of you are aware, I have taken the first tentative steps towards my own retirement. I joined forces with a new, much younger partner, and we have transitioned our business to a new broker-dealer, Commonwealth Financial Network. Our objective has been both to build the structure of a business that will thrive well into the future, but also to prepare our clients for the time when I will no longer be the senior face of that business.
None of this process is easy or comfortable. Change is inherently uncomfortable, and I have new respect for all who have traveled this path before me. Still, uncomfortable as it may be, we each need to face our financial realities, whatever the emotional strain.
The realities of retirement one needs to assess include the following:
- Develop a realistic retirement budget: how much after-tax income do you or your family need to live the lifestyle you wish to have in retirement.
- Paramount among the expenses in a realistic budget is healthcare. Medicare, for those eligible, covers many expenses of hospital stays, but you must pay for Medicare coverage for doctor’s visits and medications. Many will also want a Supplemental policy to augment the coverage provided by Medicare.
- Retirees need to prepare for the possibility of assisted living, either in one’s own home or in a facility. Whether one purchases a Long Term Care (LTC) policy to cover such costs, or self-insures with assets saved for that purpose, or is willing to liquidate the equity in one’s home, realistic estimates of the cost of such care need to be part of one’s plan.
- List your retirement income sources: The Social Security System provides basic summary information that approximates your benefits for any particular retirement age, as will your employer’s pension plan should you be among the fortunate few that still have such pensions. Qualified plans and IRA’s have their own rules outlining required distributions once you attain age 70-1/2. No rules limit the maximum distribution you may take, but larger distributions may deplete a fund needed throughout retirement.
- If those sources of income are insufficient to meet the needs of your retirement budget, then you need to either delay retirement or deplete other assets you have saved. You may even need to consider accessing the equity in your primary residence, but such a step should be carefully considered. A mortgage-free residence is a strong safeguard against rising costs of living.
The bottom line to all these thoughts is that change, though uncomfortable, is inevitable, and the best way to prepare for change is to anticipate it to the best of your abilities, gather the information required, and build the financial road map that will allow you to live comfortably without financial worry. And finally, check your plan often. Don’t get caught fighting the Crimean War when retirement Armageddon arrives.
Our firm, with professionals in taxation, insurance planning, estate planning and retirement planning, is uniquely qualified to help you assess your retirement needs. Give us a call. Come explore history and geography, if you are so interested. Regardless, we’re here to help draw your financial roadmap to a secure future.