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3-2-1 Newsletter (6-25-2020)  Thumbnail

3-2-1 Newsletter (6-25-2020)

10-Minute Read

Let’s get right at it. Here are three insights, two findings, and one action to take.


I. The retirement cycle of improvement

Preparing for retirement will never be an easy undertaking. But it can be helped immensely through awareness, practice, and habits.

Here is my 4-step process improvement cycle to enhance any retirement.

  1. Awareness: clarify your retirement vision and the supporting actions.

  2. Practice: focus your conscious effort on the actions to realize the vision.

  3. Habit: with practice, the effort becomes automatic. 

  4. Repeat: begin again because all retirements are a work in progress.

II. Ignoring risks in retirement doesn't make them go away.

At a very young age, children know that pretending something doesn’t exist doesn’t make it go away. They know closing their eyes and wishing away a bad grade or an illness won’t change the situation. Children grasp this, but many adults struggle in this area. This has always puzzled me. I have watched countless people face risk but choose to do nothing about it.

It’s important to remember retirees have less capacity for risk, as they become more vulnerable to a reduced standard of living when risks appear. Those entering retirement are crossing the threshold into an entirely foreign way of living, where unanticipated risks can undermine goals and plans. Common risks include a reduced earnings capacity, visible spending constraint, market volatility, unknown longevity, spending shocks, compounding inflation, and declining cognitive abilities. Less common risks are the loss of a spouse and unknown medical costs. 

While avoiding risk is impossible at any age, knowing the risks you will likely face and planning to deal with them is your best defense. Start by creating an inventory of what you want to avoid in retirement. These are your risks. Once you know the risks, you will likely face the difficult (but rewarding) work of finding the best strategies to counter them. 

III. Which of my current habits serves me the most? Which serves me least?

Habits are the cornerstone needed to accomplish goals. James Clear writes extensively on this and why some people are more successful than others at accomplishing just about anything they set out to do, primarily by adopting good habits. 

This got me thinking about which habits serve retirement the most and the least. If you’re feeling stuck in your retirement planning, here's a list of the most and least productive habits. Perhaps some of these will ring true and motivate you to make the necessary changes to reach your retirement goals.


  • focus on executing a strategy
  • cash flow mindset
  • efficient saving
  • focus on the most efficient ways to support lifetime spending
  • goal-focused investing
  • a mindset of meeting lifetime spending goals and preserving assets for legacy and liquidity
  • tax-saving mindset


  • flying by the seat of my pants 
  • wealth accumulation mindset
  • under/over saving
  • lack of focus on the most efficient ways to support lifetime spending
  • market-focused investing
  • lack of focus on meeting lifetime spending goals and preserving assets for legacy and liquidity
  • tax-waste mindset


I. The Efficient Frontier for Retirement Income

Professor, researcher, and author Wade Pfau on the importance of product allocation in retirement income planning:

“...to best meet two competing financial objectives for retirement: satisfying spending goals for life and preserving financial assets. … I found with my simulations is that the efficient frontier for retirement income generally consists of combinations of stocks and income annuities. Bond funds do not make it to the frontier and do not serve a useful role for meeting spending goals in the optimal retirement income portfolio.”

Takeaway: Two points stand out here. First, while a stock and bond asset allocation may serve you well in saving for retirement, it’s not the most efficient and effective way to fund spending in retirement. Second, replacing bonds with annuities in the asset allocation has been shown to meet the two principal retirement goals of supporting lifetime spending and preserving financial assets for legacy and liquidity better than a stock and bond portfolio.

 Source: Safety-First Retirement Planning: An Integrated Approach for a Worry-Free Retirement

II. Those who work longer live longer, study shows

 Research has long confirmed working longer is one of the top ways to increase retirement income. And now there’s evidence to support that it also reduces the risk of death. Healthy adults who retired one year past age 65 had an 11% lower risk of death from all causes, while unhealthy retirees who worked a year longer had a 9% lower risk of death, even when taking into account demographic, lifestyle and health issues. The evidence is clear: working longer has economic and health benefits for most retirees.

Takeaway: For those who can delay retirement beyond age 65, the economic and health benefits make a strong case for considering it.

 Source: Those who work longer live longer, study shows 


I. Assess the risks most impactful to your retirement.

Prudent retirement income planning begins with identifying and implementing the actions necessary to support the goals while protecting against risks that stand in the way of those goals. Undertaking the right actions consistently before and during retirement is crucial to your golden years. 

We’ll look at one action item to take and reveal a new one each week.

This week’s smart habit: Assess the risks most impactful to your retirement. 

Life is risky, whether saving for or spending in retirement. And all retirees will face some risks during retirement. And to a large part, how they are dealt with will determine the quality of retirement. Before the risk can be dealt with, you’ll need to know which risks you’ll likely face. This depends partly on what you identify as an actual risk versus a perceived risk. For example, a retiree who doesn’t expect to live a long life may not want to plan for a longer-than-expected life, while someone reasonably healthy may still want to account for increasing medical costs down the road. 

Consider the questions below to help identify the risks you’ll likely face and note the answers. Next, prioritize them from most to least important, assess your preparedness level, identify gaps, and explore solutions to address them. 

  1. What are the things that concern me the most about my retirement?

  2. What are my greatest fears of living in retirement?

  3. Do I know the common risks I might face later in life?

  4. What are the things I want to avoid in retirement?

  5. What risks have others similar to me had to face?


Have a Question? Want to chat about it?


Until next week,

Mark Sharp, CFP® RICP® EA