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3-2-1 Newsletter (4-16-2020) Thumbnail

3-2-1 Newsletter (4-16-2020)

5-Minute Read

This is a strange time. I'm trying to stay sane by creating new routines to remain physically and psychologically healthy. Wherever you are in the world, I hope you stay safe and healthy.

Let's take a break from the constant news cycle and spend a few minutes exploring three insights, two findings, and one action...


I. The most useful form of patience is persistence

Patience implies waiting for things to improve on their own. 

Persistence implies keeping your shoulder at the wheel and continuing to work when things don’t work out as expected or take longer than planned. 

A successful retirement requires patience and persistence. 

Patience is necessary because a market-driven retirement strategy will require resisting the urge to change your portfolio based on market ups and downs. 

Persistence is required because the road to retirement is full of detours, delays, and trade-offs that require a commitment to see the strategy to its envisioned outcome.

Patience and persistence underpin the best retirement outcomes; a retirement absent them leads to a less-than-desired outcome.

II. Win the moment in front of you right now

As COVID-19 rages, decimating lives and economies along the way,  it’s difficult to think about anything but meeting the challenges directly in front of us, such as staying healthy, paying bills, and remaining employed. While it’s important to focus on these things, now is not the time to take your eyes off your greatest long-term goal: retirement. 

Here are five things to do to win the moment (and retirement) right now. 

  1. Create Retirement Strategy: Retirement starts and ends with a plan that outlines clear, achievable strategies designed to reach goals.

  2. Retirement Strategy Review: Planning for retirement is not a one-and-done deal but an ongoing process that requires periodic review to ensure the plan is working and will continue to work. 

  3. Investment Strategy Review: A substantial number of retirements are funded through investments, so it’s important to review the investment strategy (asset allocation, asset location, re-balancing, expenses, and taxes) to identify and address any areas that could derail the plan. 

  4. Review Savings Rate: you can only spend what you save, so you want to ensure you set aside enough money during working years to support non-working years. 

  5. Review Income Strategy: producing stable, sufficient income goes a long way toward maintaining retirement security. Prioritize opportunities to create additional sources of income (pensions, Social Security, annuities) and optimize withdrawal strategies to produce income from assets.

III. 5 ways you can make the most of the COVID-19 pandemic

From the very beginning of the COVID-19 pandemic, I’ve been pondering this idea. Looking for a silver lining among the never-ending dismal news. And it got me thinking about what steps to take on a personal level to make the most of what we're going through.

  1. Remain Objective & Focus on Personal Economy - Markets will go up and down, and it can feel tempting to “protect” your money by selling stocks or switching to different investments. Remembering your investment plan was set up to fulfill long-term goals, not short-term gains, can be helpful to avoid succumbing to an emotionally driven investment decision.

  2. Review Personal Safety Nets - An emergency fund and insurance coverages are intended to help in the face of unexpected circumstances, here's looking at you, Coronavirus.  These safety nets can assist in small and large unplanned expenses that come up and are not part of your usual bills and spending. 

  3. Fortify Financial Foundation - Your financial house is only as stable as the foundation on which it rests. Key to a strong financial foundation are fulfilling the five fundamentals of fiscal fitness, which are 1) saving at least 10% of annual income, 2) maintaining safety nets, 3) fully funding retirement, 4) being properly housed and 5) managing consumer debt.

  4. Review Spending Plan- Even if your job status has not changed and your income remains steady, consider reviewing your spending plan, cutting unnecessary costs, and taking advantage of extra money left over each month. You might consider increasing your retirement fund contributions or adding to your emergency savings fund with this extra money. 

  5. Proactive Tax Planning - By law, you only have to pay the amount of taxes you are legally required to pay and no more. To cut your tax bill and keep more money in your pocket, make sure you include these three tax planning strategies as part of your annual tax planning:

    1. Reduce income - Less income leads to lower tax rates and less tax owed.

    2. Increase deductions - Higher deductions reduce the income subject to tax and the amount you have to pay.

    3. Maximize credits - Credits dollar-for-dollar reduce the tax you must pay. 

As we collectively confront this global emergency, there are a few steps to take to make the most of the pandemic. 


I. Experts Say U.S. Is Nowhere Close To Reopening The Economy

According to a recent editorial in the New York Times, we’re still quite a ways to reopening the economy. Experts note the principal reason is that the U.S. economy cannot fully open and return to normal until individual citizens are confident they can go about their daily business without a high risk of catching the virus. Accordingly, economics experts emphasize the first key step remains a rapid ramp-up in testing, contact tracing, and isolation for those infected with COVID-19. Ultimately, though, the biggest concern about reopening the economy is the risk that if it re-opens too quickly, it could cause a second spike of infections. If that occurs, it can undermine trust in the government’s safety recommendations and cause people to even further self-isolate and sequester themselves… and make them unwilling to come back out and engage in the economy again, even when it is safe to do so.

Source: New York Times - Experts Say U.S. Is Nowhere Close To Reopening The Economy

II. IRS Extends More Deadlines To July 15 Under Coronavirus Relief

As is often the case, there is good in the worst situations. You have to keep an open mind and look for the good. The COVID-19 pandemic has upended life as we knew it. The deaths will eventually cease, and life will return to normalcy. But in the meantime, it’s not all doom and gloom. There are some bright spots we can use to our advantage. One is an extension of the annual tax filing deadline. The IRS has delayed both the filing and payment deadline until July 15th. This deadline includes the requirement for first and second-quarter estimated tax payments for 2020 (which otherwise would have been due on April 15th and June 15th, respectively). Taxpayers won’t need to do anything to receive the automatic extensions. Though ultimately, with ambiguity about when the coronavirus spread will end, the U.S. Chamber of Commerce is already raising the question of whether the 2019 tax filing deadline may need to be delayed even further – potentially through October 15th, or even as late as next April of 2021!

Source: Wall Street Journal - IRS Extends More Deadlines To July 15 Under Coronavirus Relief


I. COVID-19 Pandemic Smart Personal Finance Habit Of The Week

Incorporating smart financial habits is always beneficial, no matter what is happening in the world. Maintaining them will safeguard financial stability and help reach financial goals. 

Each week, we’ll look at one financial habit to safeguard financial stability and help achieve financial goals, and we’ll reveal a new one each week.

This week’s smart habit: Retirement Income Strategy

Why it’s important: Funding retirement is arguably as important as knowing when to retire. Yet most don’t give it much thought. That’s unfortunate because how retirement is funded can determine spending level and duration and the amount of risk you are willing to tolerate to support spending.  The two most common approaches are Probability-based and Safety-first. A Probability-based approach generates income by liquidating investments (401(k)s, IRAs) through timely systematic withdrawals. This approach has its drawbacks, namely market volatility, as asset value can go up or down depending on market performance resulting in spending cuts and prematurely running out of money. The Safety-first approach uses secure income sources such as Social Security, pensions, and annuities immune to market performance to create more stable income to meet essential spending needs, resulting in reduced volatility and guaranteed income.

You can make a case that deciding on an income strategy is arguably the most important retirement decision because it can determine how much money is available to spend and for how long, and how much volatility exists in spending. 


Have a Question? Want to chat about it?

Get In Touch

Until next week,

Mark Sharp, CFP® RICP® EA

Mark Sharp Retirement