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3-2-1 Newsletter (5-21-2020)  Thumbnail

3-2-1 Newsletter (5-21-2020)

10-Minute Read

Without further delay, here are three insights, two findings, and one action to think about this week.


I. Secure income sources equal secure retirement

All retirements have goals that require funding. Some goals are more important than others. Choosing the right income sources to fund the most important goals is crucial to retirement income security. And this begins with a well-thought-out retirement income strategy.

Goals play a huge role in any retirement income strategy. And there are essential and nonessential goals. Essential goals pay for basic living expenses such as food, housing, healthcare, and utilities. They also include paying for unexpected home repairs, large medical bills, and financial support to others. Non-essential goals pay for discretionary things like dining, hobbies, travel, and providing a legacy. 

Retirement income security ensures income is available to fund goals when needed. So you want to use the most secure income sources for goals with little to no payment flexibility. This starts with identifying guaranteed sources of income like annuities, pensions, and Social Security to pay for these essential goals. For non-essential goals with more payment flexibility, income from less secure sources like investments can be relied upon to meet income needs.  In practical terms, non-essential goals are not considered until secure funding sources for essential goals are in place.  

Retirement income security depends on having goals paid for when they are needed. This starts with selecting the most secure income sources to meet the most important goals and building from there to meet other less important goals.

II. The domino effect of retirement decision making

Making a single decision can be difficult, but making a series of decisions where each potentially impacts the others is tricky. Many retirement decisions require just that domino effect of decision-making.

Start by shifting your retirement paradigm from a series of individual decisions to one that focuses on collective decision-making. Retirement income planning often begins when someone seeks help with a specific decision. What probably hasn't been considered is how all these issues are related and should not be made one at a time. In addition, there may not be an awareness of which decisions have the greatest impact on retirement security. These are all important factors that impact decision-making and retirement outcomes and should play a central role when planning. 

A good framework when thinking about your situation:

  1. Take a big picture view accounting for all known information -- internal and external.

  2. Realize that not all decisions should be made one at a time.

  3. Prioritize each decision's impact on income security.

Using this step-by-step collective decision-making framework and working with a trusted financial professional can help you make more deliberate, strategic, and valuable decisions, so all the retirement dominoes fall your way.

III. In Times Of Crisis: Seven Estate Planning Tips For Your Retirement

In the best of times, very few relish conversations about incapacity or death, but the COVID-19 Pandemic has elevated these to dinner table conversations. If this has got you thinking about quickly creating or updating your estate plan, consider these seven tips to help start the process.

Talk to an attorney - Putting your affairs in order is crucial, and you want to do it right. This starts with working with a skilled attorney to ensure the necessary steps are taken. 

Create a will - A will appoints a guardian to raise your children if you cannot do so, identifies an executor to settle your affairs when you die, and determines who will get what and when they will receive it.

Create your Power(s) of Attorney (POA) - A POA empowers someone to make financial and medical decisions on your behalf if you cannot do so. 

Complete HIPPA releases - The rules of HIPPA are intended to protect health information privacy and are strict. Executing a HIPPA Release Form for each POA agent in advance is advised. 

Create a living will/advanced directive - These communicate to your physician and loved ones who will make health care decisions on your behalf if you cannot do so, clarify end-of-life desires, outline healthcare wishes, ensure comfort and dignity, and authorize access to medical records.

Learn your state’s POLST process - A Physician Orders Life-Sustaining Treatment order is a process to improve communication of your decisions to accept or decline medical intervention and to ensure those decisions are honored. 

Have a document storage plan - Estate planning forms are of little value if it takes too long to find them. Your POA will mean nothing if the physician has already unhooked the ventilator. The Will indicating your burial wishes will be moot if the document is sealed in an inaccessible safety deposit box. Entrusting hard copies of key documents to family and trusted friends is advisable. 


I. 13 Financial Moves to Make After Losing a Spouse

Very few things disrupt life, like the death of a spouse or partner, leaving most at a loss for what to do next. When death comes before you realize your retirement plans, it can be particularly devastating. From triaging financial decisions and claiming life insurance death proceeds to applying for Social Security benefits and managing retirement savings, making the right financial moves early can set you up for greater financial stability later.  Click on the article below to learn more and discover other financial moves.

Source: 13 Financial Moves to Make After Losing a Spouse

II. Social Security During A Pandemic: Five Factors To Consider

For years, we’ve known comfortable retirement is a goal that, for many people, is getting further and further out of reach. Generous pensions for workers are disappearing, less than half of Americans own any retirement savings, and many lack basic knowledge of proper retirement planning techniques. Considering these facts, Social Security, as a guaranteed government benefit, has become the go-to solution for funding most people’s retirements. 

But life often gets in the way of our plans. The COVID-19 pandemic upended how we all think about financial markets sending portfolio values into a freefall, making current income uncertain, and forcing many to look at Social Security as a way to bail out retirement. But is this a good idea?

As pointed out by the article, this depends on many factors such as life expectancy, benefits of delaying, family financial needs, other available resources, and whether or not Social Security will be around when you need it. Any of these factors can impact the optimal time to claim benefits. And the right answer to any of them is unique to every situation and requires careful planning and consideration. 

While Social Security can be a huge asset to shore up current and long-term financial plans, it’s also not a panic button to be pressed in the heat of the moment or a benefit to be taken for granted. 

Source: Social Security During A Pandemic: Five Factors To Consider


I. 3 things to do while saving for retirement to help to spend in retirement.

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. 

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: What to do while saving for retirement to help to spend in retirement.

1) Visualizing a retirement lifestyle will make saving easier. It’s simpler to know how much to save for retirement when you know how much it costs. And this begins with visualizing what the lifestyle looks like. This helps determine if current and planned savings are sufficient and if additional savings are needed.  

2) Focus on replacing income instead of accumulating assets. This framework is easier to understand because saving to meet monthly or annual spending amounts is more realistic than saving to accumulate a certain amount of assets. From a practical standpoint, saving with a focus on replacing income is a much more efficient way of saving. 

3) Certain risks may be best addressed while still working. Risks such as frailty may be best addressed by purchasing long-term care insurance in your 40s and 50s.


Have a Question? Want to chat about it?

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Until next week,

Mark Sharp, CFP® RICP® EA

Mark Sharp Retirement