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3-2-1 Newsletter (3-19-2020) Thumbnail

3-2-1 Newsletter (3-19-2020)

5-Minute Read

During these unprecedented times, we want to take a moment to thank you for allowing us into your inbox. We hope everyone is staying safe and healthy.  We’ve rounded up 3 insights, 2 findings and 1 action. Enjoy!


I. The UPSIDE to the downside

This may well have been the first week ever where every day was one of the 100 best or worst days for the S&P 500 Index since 1928. If you’re approaching or in retirement, you’re probably wondering what this means. That depends a lot on your retirement income strategy. An income strategy specifies how income is generated to support retirement spending. The two primary income strategies are probability-based and safety first.

A probability-based strategy is designed to generate income through withdrawals from an investment portfolio. Investments are sold in specified amounts to produce income to meet spending needs. This is a market-driven income strategy because the amount of income that can be safely withdrawn without depleting the investments depends on how well (or not) the markets perform. 

In contrast the safety-first strategy is a more bifurcated approach to generating income that integrates investments with insurance, providing lifetime income protections. The goal of this is to ensure essential spending needs are first met with income sources unaffected by market performance. Only then are investments brought into the mix to fund non-essential spending needs. By doing this, all the risks and responsibility of funding retirement inherent in the first strategy has been transferred from the retiree to someone else. No longer is retirement income determined by market performance. 

Perhaps the only positive to take away from recent market turmoil is that it presents a unique opportunity to evaluate how you want to fund your retirement to align with your level of comfort, risk and trust in the market.

II. How to make your money last in retirement

Retirement is loaded with questions from ”How long will I live?” and ”Will I outlive my money?” to “How will I pay for healthcare costs?” and “How do I deal with market ups and downs?” There isn’t an exact timeline on how long we will live or what our future may hold, so it’s understandable to have questions and concerns about the road ahead. 

Whether you are already retired or just beginning to consider your retirement years, these questions are top-level concerns. Thankfully, there are several steps you can take to increase the odds your finances will last as long as your retirement chapter. We’ve rounded up a few options in the video below to help your money last and work in your favor during these retirement years.

 Watch the video

III. If you don't know where you are going - you'll end up someplace else

This reminds me of the Alice in Wonderland fairy tale where Alice happens upon a crossroad. She stops and asks the Cheshire cat for directions. The cat asks if she knows where she wants to go. Alice replies no. The cat says then it doesn’t make any difference which road she takes.

The lessons from this fairy tale are meaningful and useful in daily life: unless you know where you want to go it will be difficult for you or anyone else to help you reach your destination. To get anywhere in life and achieve success, you need a vision of success. Start by envisioning what you see as a successful and financially secure future in retirement and the road becomes clear to you and those you enlist to help with your journey!

Do you know the road out of many to take to reach your retirement destination?


I. How best to annuitize defined contribution assets

Studies indicate the majority of retirees choose to fund retirement by taking withdrawals from 401(k) plans and Individual Retirement Accounts (IRAs).  As a result, they are faced with a number of difficult decisions, such as how much to withdraw each year, and face the risk of either spending too quickly and outliving their resources or spending too conservatively and consuming too little.  Surveys of individuals’ plans and recent studies suggest people will not draw down their accumulations for fear they will exhaust their money and be unable to cover end-of-life health care costs. They also must consider how to invest their savings after retirement.  This article highlights the pitfalls of this approach and provides alternative strategies that will ensure a higher level of lifetime income, reduce the likelihood that people will outlive their resources, and alleviate some of the anxiety associated with post-retirement investing.  

Source: How Best to Annuitize Defined Contribution Assets?

II. 4 retirement planning steps everyone should take now

Many people are not even taking baby steps to pave the way for a financially secure retirement. For some, retirement planning seems too difficult; for others it seems like retirement won’t ever apply to them.  The facts are most workers will retire someday and, by taking a few basic steps now, they can vastly improve the outlook for their future retirement security. Jamie Hopkins lays out a four-step process everyone can use while doing retirement income planning. 

Source: 4 retirement planning steps everyone should take


I. One decision you need to make to successfully prepare for retirement

Well-established research indicates there are a number of key decisions that have a significant impact on financial security in retirement. 

We’ll look at one of these decisions for our action item this week and reveal a new one each week.

The completion of these tasks are critical to retiring, and failing to make the decision will put retirement at risk.

This week’s decision: When and how to retire.

Why it’s important:

When to retire depends on if and when it’s financially viable. This begins with a detailed assessment of current financial standing to determine if the resources are in place to support retirement. If there are insufficient resources available, the quality of retirement will be less than expected.  

How to retire is the non-financial side of the retirement equation. Here the focus centers on the following questions:

  • whether to retire entirely at once or transition from work into retirement

  • how to fill up time in retirement 

  • determine if retirement is voluntary or involuntary

  • evaluating how the decision to retire impacts key relationships 

Retirement is never just about the money. Having enough money to retire is important but unless that money is coupled with some sort of vision of what that future will be, retirement may be disappointing.


Have a Question? Want to chat about it?

Get In Touch

Until next week,

Mark Sharp, CFP® RICP® EA

Mark Sharp Retirement