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Financial Escape Velocity

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By Jasen M. Gilbert, CFP®

The year 2019 marked the 50th anniversary of the Apollo 11 mission and landing on the moon – one of the greatest accomplishments for the US in space history. This was a successful culmination of many years of research, testing, and many earlier missions that laid the groundwork for Neil Armstrong and Buzz Aldrin to make the “giant leap for mankind.” In order to accomplish space exploration, we had to achieve Escape Velocity of the Earth which is approximately 33 times the speed of sound­­. In other words, a tremendous amount of energy is needed to overcome the Earth’s gravitational force. 

How does this relate to retirement planning? You may have saved and worked all of your life to put away enough money and get to a point where you are financially independent. This may have included raising a family, putting kids through college, developing or building a business, or possibly a long career climbing the executive ladder. Along the way you have developed a significant nest egg – maybe through disciplined savings, maxing out your retirement plans each year, saving additional funds into non-retirement accounts. Whatever path you took, you finally reached financial escape velocity, a point where you are now financially independent and confident to take the plunge into the next chapter.

You finally get to retirement or the next chapter and you are faced with a multitude of challenges – issues or situations that you have not been faced with during your working years, some very difficult to plan for, which challenge your financial escape velocity. Situations may include:

Financially Assisting Adult Children 

Through childhood and adolescence, it’s a parent’s duty to provide support for children by helping them mature and grown into adults who will, in turn, support themselves. However, some children may struggle more than others to find their footing. The instinct to shelter and protect your children is one that really never leaves a parent, even once they have reached the age of adulthood. Many parents may continue to attempt to protect them from financial hardship. An occasional helping hand may be ok, but continually shouldering expenses could cause detriment to your retirement plans. 

Parents who find themselves in a difficult spot where they are spending significant funds might be unwilling to confront their children in fear of damaging the relationship. This may be a good point to bring in your financial advisor to help mediate and facilitate discussions with your children to advance them toward a place of their own financial independence.

Unforeseen Medical Needs

High medical costs are a concern for most retirees, and it’s a reasonable concern. According to the Employee Benefit Research Institute (EBRI), a 65-year-old couple with median prescription-drug expenses who retire this year will need $295,000 to enjoy a 75 percent chance of being able to pay all their remaining lifetime medical bills, and $360,000 to have a 90 percent chance. Those figures factor in the premiums for Medigap and Medicare Part D outpatient drug benefits to supplement basic Medicare but do not include the cost of long-term care facilities or additional insurance plans. 

A sudden illness, accident, or the need to move into a long-term care facility earlier than expected could quickly dwindle down savings. Even a simple surgery could cost tens of thousands of dollars. Pre-retirees may want to look at their own family health history to gauge an idea of conditions they may want to financially prepare for. For those who qualify, a Health Savings Account (HSA) could help future retirees build a nice healthcare nest egg. 

Longevity 

People are living increasingly longer lives. Babies born today are likely to live longer than ever before. Living longer may have many advantages: more time to spend with loved ones, to travel, achieve your hopes and dreams. However, additional years may require you to rethink your retirement considerations and expectations. 

One major hurdle may be the cost. The percentage of people in defined benefits plans or pensions has declined, leaving a population with less longevity protection. The low-interest-rate environment also means that “safer” (lower-risk) investments may not offer high enough returns for investors. Individuals may want to have allocations for various retirement goals such as basic living expenses, healthcare/long-term planning, enjoyment, charitable giving, and bequests. Retirees may also need to consider “rebalancing” their life verses their portfolios. How will you spend the extra time? Will you stay where you are, or move closer to your family? How will you and your spouse adjust to the additional time spent together? 

Market Volatility 

Unless you have a good crystal ball lying around, there is really no way to perfectly predict every dip or change in the market. There is typically some level of risk in every investment, whether monetary or otherwise. However, once you have surpassed your working years, and begin pulling from your nest egg instead of contributing to it, market corrections may seem to hold a greater risk to financial stability. 

Retirement planning should ideally be about the long journey, including market fluctuations. A diversified portfolio may help to minimize the impact of a market downturn. A proper tax preparation strategy could also help you reduce the tax hit that could accompany future interest rate changes. 

As we start out the New Year and new decade there is never a better time to take a look at your financial plan and ensure that it is up to date and provides you and your Family with “Escape Velocity” to get you where you want to be.

Please join us for our CAS Wealth Symposium on February 5th where we will be talking about some key topics relating to maintaining financial wellness. 

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

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