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3-2-1 Newsletter (4-30-2020) Thumbnail

3-2-1 Newsletter (4-30-2020)

5-Minute Read

Let's get right to it. Here are this week’s three insights, two findings, and one action...


You have to pull, breathe, kick, and glide in retirement.

I swim for fitness and relaxation and find it to be the best form of exercise for me. My favorite stroke is the breaststroke because it allows me to get a great workout while reducing stress. Sure, the butterfly stroke is exhausting, but the breaststroke, despite its seemingly simple nature, requires a timing between the pulling, breathing, kicking, and gliding motions that are challenging to master.  This wasn’t easy for me, and it’s taken me years to make it my go-to stroke. But like most things in life, if you want a successful outcome, you have to do more than think about it; you have to plan and execute to see it through.

Learning about the breaststroke got me thinking about its parallels to retirement.  Specifically, I thought about how important it is to learn and execute the basics in a coordinated and consistent manner to achieve the desired outcome.

Here are the parallels:

In the breaststroke, you pull to set up your breathing; in retirement, you save to finance retirement. 

In the breaststroke, you breathe to set up the kick; in retirement, you allocate the savings to best meet the returns needed for retirement.

In the breaststroke, you kick to set up the glide; in retirement, the savings grow to produce the returns needed to fund retirement.

In the breaststroke, you glide for forward progress; in retirement, you spend sustainably for forward progress over your remaining lifetime.

Whether you’re saving for or spending in retirement, focus on executing the four steps of saving resources (pull), allocating resources (breathe), growing resources (kick), and sustained spending of resources (glide).   

II. A consistent rebalancing strategy removes emotion and reaches the investment goal.

Your portfolio’s asset allocation reflects your goals and temperament—the need for return and the ability to withstand the financial markets’ inevitable turbulence. Over time, as the returns of higher- and lower-risk assets diverge, a portfolio can take on exposures inconsistent with your risk and return objectives. Rebalancing from one asset class to another can put the portfolio back on track. Rebalancing isn’t fun and can be complicated, so most investors don’t re-balance because they don’t have a strategy or don’t consistently execute the one they have. In my view, no one rebalancing strategy is optimal in all situations. Research has shown that over the long term, having a rebalancing strategy is better than not having one. And picking one that suits your needs that best reflects what you’re trying to do will help you adopt a disciplined investment philosophy to minimize performance surprises, manage emotion and focus on reaching long-term goals. 

Here are four best practices when setting expectations for and executing a rebalancing strategy:

  • Have a rebalancing strategy— do this first.

  • Consider the impact of different rebalancing frequencies (monthly, quarterly, or annually) and thresholds (predetermined percentage change).

  • Learn what you can do to minimize rebalancing tax and transaction costs.

  • Understand the risks of not having a consistent rebalancing strategy.

There is no wrong rebalancing policy, and there’s not an optimal one that everybody should implement. No single person can control what the markets are doing. So don’t let them control your actions. Remember, have a re-balance plan, execute it, and stay disciplined. These are the things you can control. 

III. What can you do for your retirement in 5 minutes?

In 5 minutes, you can:

  • Think through the things you hope to accomplish--these are your goals.

  • Think through the things that stand in the way of your goals--these are your risks.

  • Think through your thoughts on market volatility--this is your risk tolerance.

  • Think through how you want to fund spending--this is your income strategy.

  • Think about your asset allocation--this is how you’ll produce the returns needed to support the goals and manage the risks suited to your tolerance level.

  • Think about your knowledge gaps--this will help you identify the blind spots that could undermine your retirement.

Retirement often doesn’t need more money or time—just a little focused thought.



I. Does your retirement account for a Social Security benefit reduction?

Social Security serves as a key source of income for millions of older Americans. That could be bad news as Social Security is projected to exhaust its trust fund and trigger a 21% benefit reduction unless Congress takes steps to fill the funding gap. The gap results from more workers--retirees--leaving the workforce than workers entering to replace them.  This results in Social Security spending more on benefits than the money it takes. Possible steps to close the funding gap include raising the full retirement age and increasing the amount of worker income subject to Social Security tax. Both steps would put more money into the system but at the cost of delaying benefits to lower-income individuals with lower life expectancies and putting a strain on earners whose income is moderately high but not extraordinarily high. 

Unfortunately, there's no great solution to Social Security's financial woes. Therefore, current and future recipients alike should brace for the possibility of 2035 when the Social Security trust fund is expected to be depleted. Benefits may look a lot different, and this possibility should be incorporated into a retirement income strategy to minimize impacts on spending. 

Does your retirement income strategy account for a Social Security benefit reduction?

Source: Social Security Cuts Are Still on the Table -- and They're Larger Than They Were Before

II. What the COVID-19 pandemic means to retirees and soon-to-be retirees.

It would be a gross understatement to say the COVID-19 pandemic has upended life as we know it.  Its impact has been felt far and wide, affecting how we go about daily living. One area that may have received less attention from the media but not from retirees and near-retirees is how it has impacted retirement. The immediate impact is the market volatility of retirement accounts. Depending on the portfolio's makeup, the impact level could vary. To help retirees and pre-retirees facing financial difficulties, the government has passed the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which can impact your 401(k), IRA, or other retirement accounts. This Act has created financial savings or relief opportunities for those nearing or in retirement in the form of suspended required minimum distribution (RMD) for 2020, penalty-free 401(k) and IRA withdrawals, and an extension of the tax deadline.

Source: What the COVID-19 pandemic means to retirees and soon-to-be retirees



I. 4 money moves to make now for future success

Incorporating smart financial habits is always beneficial, no matter what is happening worldwide. Maintaining them will safeguard your financial stability and help you reach financial goals, whether preparing for or living in retirement. 

We’ll look at one financial habit to safeguard financial stability, promote financial well-being, and reveal a new one each week.

This week’s smart habit: 4 money moves to make now for future success.

  1. Strengthen Safety Nets - Robust emergency funds and sufficient insurance are intended to help in the face of unexpected circumstances like a job loss or extended illness. Safety nets can assist with unplanned expenses that are not part of usual bills or spending and protect other savings dedicated to meeting goals like retirement. 

  2. Fortify Foundation - Your financial house is only as stable as its foundation. A key to a strong foundation is fulfilling the five fundamentals of fiscal fitness, which are 1) saving at least 10% of annual income, 2) building safety nets, 3) fully funding retirement, 4) managing debt, and 5) ensuring being properly housed. A strong financial foundation can put you in a better position to weather any economic downturn.

  3. Streamline Spending - 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. The extra money can increase retirement contributions, pay the debt, or add to emergency savings. 

  4. Timely Tax Planning - Tax preparation is backward-looking and reactive and offers limited ways to reduce your tax liability. On the other hand, tax planning is forward-looking and proactive and offers expanded opportunities to reduce your tax liability and keep more of your money.  Look for opportunities to reduce income, increase deductions, and maximize credits. A penny saved is a penny earned. 


Have a Question? Want to chat about it?

Get In Touch

Until next week,

Mark Sharp, CFP® RICP® EA

Mark Sharp Retirement