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3-2-1 Newsletter (5-7-2020)  Thumbnail

3-2-1 Newsletter (5-7-2020)

5-Minute Read

As we flip the calendar from April to May, here are three insights, two findings, and one action. 


I. How to 80/20 your retirement.

The 80-20 rule, also known as the Pareto Principle, is an aphorism that asserts 80% of outcomes result from 20% of all causes for any given event. In retirement, the goal of the 80-20 rule is to identify the activities that are potentially the most productive and prioritize them. With that in mind, here’s how that could look...

(1) List ten desired retirement goals and ten anticipated retirement risks.

(2) Circle the goals that drive happiness and the risks that interrupt happiness. 

(3) Assign costs to the two goals and two risks.

(4) Commit to a strategy to fund the goals and risks.

(5) Look at the others. Eliminate selfishly. Press pause on the rest.

(6) Repeat.

In a world inundated with retirement planning approaches, blueprints, master plans, plans of action, strategies, and schemes, the real advantage is knowing where to focus.

II. The first mistake is never the one that ruins you. It’s the spiral of repeated mistakes that follows.

The road to retirement is full of ups and downs. It’s helpful to keep in mind mistakes will be made, and no one mistake will sink into retirement. It’s the repeated ones on a cumulative basis, like your inaction, investment behavior, savings rate, overlooked risks, underestimated income needs, and obscure goals that will largely determine the outcome of your retirement more than any single one of them.  

III. What does the current moment make possible for retirement?

There is a silver lining in most things if you’re willing to look for it. And even though COVID-19 continues to alter life as we know it, it does offer opportunities we can use to benefit our retirement. 

Here are a few ways the current moment can help your retirement...

  1. It reveals true investor behavior. This helps to understand feelings about risk, how we’ll respond and behave, and how much risk we can realistically endure. 

  2. It’s a reminder markets are volatile and occasionally go down. This helps to understand market behavior to prepare for the inevitable downturns.

  3. It reminds us that asset allocation is a strategy to manage risks and control emotions. This provides an opportunity to develop a rebalancing framework to execute consistently and stay disciplined.

  4. It reveals the risk of spending from a volatile investment portfolio in retirement. This motivates us to explore retirement income strategies less dependent on market behavior if the risk is a distraction. 

  5. It’s a reminder of the long-term nature of retirement planning. This helps us understand that no single blip on the retirement radar will derail it. It’s the cumulative results that impact the outcome.

What opportunities has the current moment made possible for your retirement?


I. Its time to live on a budget, even if you’re financially secure.

Whether you’re saving for or spending in retirement, COVID-19 has introduced two big unknowns into life: how it will play out and what it means for the economy. These are huge unknowns for sure, but whether you feel financially secure or anxious right now, it’s essential to start preparing for an uncertain future. Many are adopting a money-saving mindset by rethinking their spending habits, including treating income like it’s temporary, saving money now versus spending later, and budgeting

Source: It's Time to Live on a Budget, Even if You’re Financially Secure

II. 5 things you need to know before you retire.

Making smarter retirement decisions can differentiate retirement security and retirement stress. No one knows this better than Professor Dave Littel of The American College of Financial Services, who has spent the past ten years focusing on the distribution phase of retirement and teaching other retirement planners like myself about retirement income distribution strategies. As someone approaches retirement, Dave has put together a list of the five things you need to know before you retire. These include: (1)  how making wise decisions in 6 key retirement income planning areas can increase income by 31%; (2) how giving up a career too soon can jeopardize savings and benefits and increase competition with other job seekers if future work is needed; (3) understanding retirement age, Social Security claiming age and spending levels in retirement have the greatest impact on retirement; (4) living primarily on withdrawals from a retirement portfolio may not be a good choice for the risk-averse; and (5) that the most difficult part of planning for retirement is preparing for the “what ifs,” like what if you live much longer than expected? What if you or your spouse has a serious health care issue? And what if the stock market tanks in the first five years of retirement?  

Whether you are nearing or in retirement and looking for ways to increase retirement security, these five tips may be the insights you have been looking for to secure retirement.

Source: 5 Things You Need to Know Before You Retire



I. Adopt a rebalancing framework

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: Adopt a rebalancing framework.

A portfolio’s asset allocation reflects an investor’s 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 the investor’s risk and return objectives. Rebalancing from one asset class to another can put the portfolio back on track. Over the long term, no one rebalancing strategy is dominant, but any approach is better than not having one. Having a rebalancing strategy, at least reviewing the portfolio annually, and determining if a re-balance is necessary is invaluable. Whether you want to include a threshold (a predetermined percentage to trigger a re-balance) to account for larger market moves when they happen is a personal choice. 

A simple rebalancing framework begins with 1) having a plan, 2) executing it consistently, and 3) staying disciplined.


Have a Question? Want to chat about it?

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Until next week,

Mark Sharp, CFP® RICP® EA

Mark Sharp Retirement