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3-2-1 Newsletter (7-16-2020)  Thumbnail

3-2-1 Newsletter (7-16-2020)

10-Minute Read

Allow me to share these 3 insights, 2 findings, and 1 task for the week.


I. It pays to know your risks in retirement.

The risks you'll face in retirement are not the same risks you'll face before retirement. Knowing what they are and how to prepare for them can increase retirement security.

Here are the risks you'll most likely face before and during retirement.

Risks Before Retirement

  • mortality (dying too soon impacts)

  • morbidity (loss of income from disability)

Risks During Retirement

  • longevity (living too long): leverage lifetime income sources such as annuities, pensions, Social Security and reverse mortgages.

  • risk capacity (decreased ability to maintain retirement lifestyle in a depressed market): leverage income source unaffected by market performance such as annuities, reverse mortgages, and Social Security.

  • sequence of returns (selling depressed assets for income): leverage income source unaffected by market performance such as annuities, reverse mortgages, and Social Security.

  • cognitive decline (diminished ability to manage assets): prioritize income sources with set payment amount and frequency such as annuities, pensions, Social Security, and reverse mortgages.

  • earnings capacity (reduced ability to return to the labor market): prioritize funding essential expenses with secure income sources such as annuities, cash-value life insurance, pensions, Social Security, reverse mortgages.

  • medical costs (escalating health and long-term care expenses): select appropriate coverages and dedicated funding sources for long-term care expenses.

Risks will always be in play whether saving for or spending in retirement. Knowing what they are as well as how to manage them is your best defense. This begins with identifying and developing strategies as part of a comprehensive retirement income plan that incorporates strategies to mitigate risks.

Have you accounted for and addressed all your retirement risks?

II. Risk capacity supersedes risk tolerance in retirement.

Your capacity to endure risks may be at odds with your tolerance (or appetite) for risk. That’s because risk capacity, your ability to endure a drop in portfolio value without undergoing a substantial decline to your standard of living is different from the amount of risk you feel comfortable with. In other words, while you may be comfortable with an aggressive asset allocation your portfolio may be less able (the capacity) to support your desired standard of living in a down market. 

Research suggests risk capacity is highest before retirement and decreases during retirement. This makes sense because when you’re saving for retirement, poor market returns can be offset by either increased savings to bolster the portfolio or working longer to give the portfolio more time to recover from a down market. In retirement, the options are more limited because retirees may find it difficult to return to the workforce as a result of reduced employment opportunities to earn income to counter (save more or delay retirement) market losses.

Risk capacity often gets overlooked. That’s unfortunate because in retirement your capacity to endure risk becomes more important than your tolerance (appetite) for risk. Knowing the difference between the two and how you decide to position your portfolio can be a crucial factor in a satisfying and stress-free retirement. 

III. The pitfalls of doing your own retirement income planning.

Retirement income planning is complex. From figuring out the best ways for converting assets to income streams and stretching income to last a lifetime to address the many risks in retirement, the decumulation phase is complex. This shouldn’t come as a surprise as the stakes increase the closer you get to retirement. There are more options for solving retirement challenges at ages 60 or 70 than at ages 75 or 85.

Trying to do your own retirement income planning is perilous. There are so many pitfalls and bumps in the road to do it correctly without proper knowledge, skill set, and experience.  Working with a financial professional can be one of the smartest retirement planning decisions you can make as they can help with good decision making.  According to a LIMRA 2016 “Dear Advisor” survey of those with $500,000 or more in assets with a formal written retirement income plan, 80 percent reported they were very confident in their retirement security. In contrast, only 50 percent of those with $500,000 or more assets reported the same level of retirement security without a written plan.  According to this same survey, the three tasks most respondents felt they needed the most help with were estimating how many years assets will last, developing a specific plan for withdrawals, and creating a comprehensive plan to generate income. 

Retirement security and satisfaction rest on developing and executing a formal written retirement income plan that addresses these 3 tasks (among others). Failing to address these most basic tasks can negate the best efforts made toward saving for retirement and imperil lifetime retirement spending. 


I. The Top 11 Jobs That Employers Want Retirees to Do 

Haven’t saved enough to retire? Looking to transition into retirement? Research from the Center for Retirement Research at Boston College has identified numerous jobs that regularly appear on RetirementJobs.com, a national job board focused on positions for people over the age of 50. The 11 types of jobs that popped up most often in the center’s analysis are:

  1. Office and administrative support: 15% of job postings

  2. Health care support: 14%

  3. Sales and related: 11%

  4. Computer and mathematical: 10%

  5. Transportation and material moving: 9%

  6. Health care practitioners and technical occupations: 7%

  7. Management: 7%

  8. Food preparation and serving: 7%

  9. Protective service: 4%

  10. Business and financial operations: 4%

  11. Installation, maintenance, and repair: 3%

The report notes there’s a major downside to many of these jobs: they tend to be low-quality part-time jobs with no benefits. This may not be problematic for those with sufficient savings seeking income to delay Social Security or reduce portfolio withdrawals to allow saving additional time to grow. But those seeking to substantively extend their careers need full-time work with health and retirement benefits.

The Top 11 Jobs That Employers Want Retirees to Do

II. How Can You Protect Your Retirement Portfolio During the Election?

 Does 2020 feel like a disaster movie? A pandemic, social unrest, and a presidential election in a single year. While businesses have begun to recover from the disruptions resulting from the social unrest, the long-term economic impacts of the pandemic are still being written, and there’s less known about how the presidential election will affect the economy. 

It’s worth remembering no one can predict what’s going to happen in the future, and markets have already factored into the pricing their best estimates of how likely either candidate is to win and how bad that will be for the markets. This means all of the following is reflected in the market:  whether it’s Biden or Trump as president, which party has a senate majority, and how likely each candidate follows through on their campaign promises. 

Having said that, what should you do? Nothing, actually. Unless you have some special insights into who will win and how that will affect the economy, there’s no way to know what the markets will do going forward. Your best efforts at this point amount to nothing more than trying to time the market. And we know how ineffective that can be. What is more certain is whatever economic, political, or social road bumps that appear, the markets just keep chugging along, delivering good returns for disciplined long-term investors. The key message is: stay focused on your long-term retirement goals, and don’t overreact to the next crazy thing the candidates or the person occupying the Oval Office say.

Source: The Retirement Researcher


I. What do you need the most help with in 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: Retirement is easier envisioned than achieved.  Whether you are already retired or just beginning to consider it, you'll probably have concerns and questions about a number of things. And until you address the challenges and get some workable solutions, retirement will remain a vision. 

Here are the top 3 challenges most retirees say they need the most help with:

  1. Estimating how many years assets will last

  2. Developing a specific plan for withdrawals

  3. Creating a comprehensive plan to generate income

Which of these do you need the most help with?


Have a Question? Want to chat about it?

Get In Touch

Until next week,

Mark Sharp, CFP® RICP® EA

Mark Sharp Retirement