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3-2-1 Newsletter (9-10-2020)  Thumbnail

3-2-1 Newsletter (9-10-2020)

10-Minute Read

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


 I. 3 Costly Retirement Mistakes to Avoid

1) Start Saving Too Late: 48% of those aged 55 and older have no savings.

2) Not Saving Enough: the median retirement savings balance is $60,000.

3) Failing To Plan: 58% have no formal retirement income and savings plan.

II. 8 ways issues can (and do) change in retirement

An unavoidable aspect of living is handling issues throughout life.  When we're young the issues center around navigating family life and deciding upon a career path. These give way to more profound things like deciding where to live and whether to raise a family. No matter the life stage there will be issues we must face and find answers to. It's no different as we approach and live in retirement. There are still issues unique to this life stage that need to be handled. Generally, we see different issues for different retirement age groups: the young-old (ages 50 to 65), the middle-old (ages 65 to 80), and the old-old (ages 80+). 

Here are some of the more common issues most retirees face approaching and while in retirement. 

Issues facing the young-old (retirement is around the corner)

  • How to replace employee benefits

  • Where to live in retirement

  • When to claim Social Security benefits

 Issues facing the middle-old (retired for some time)

  • More aware of the need to plan for long-term care

  • Estate planning becomes more important

Issues facing the old-old

  • More prevalence of cognitive decline

  • Protect against elder financial abuse

  • Understanding legacy—time to give life context and figure out what values you want to leave

Issues will always be in play no matter the life stage. What's important is to recognize them and then have a plan that provides concrete steps to address them as needed.

Do you recognize any of these issues in your retirement? And if so, do you feel you have done a good job preparing for them?

III. The Great MAGNIFIER in Retirement

A long life can be a great thing, but it comes with a higher cost, not only in the amount of money needed to meet income needs, but also as an additional impact on other risks. Longevity risk (the risk of living too long) plays a huge role in retirement as a MAGNIFIER of many other retirement risks. Living longer magnifies risks in the following ways:

1) increased health issues

2) heightened need for long-term care

3) increased market forces on a portfolio

4) prolonged exposure to inflation

5) heightened vulnerability to cognitive decline

6) raised spending pressure on other assets

While a long life may be a cherished retirement dream, it does come with a higher price tag. Planning for an extended life includes not only finding ways to pay for it, but also preparing for its impacts to other risks as well. 


I. How Retirees Are Reacting to Market Swings

Should I stay or should I go? It’s a question many retirees have been asking themselves quite a bit lately due to all the volatility in the markets as a result of COVID-19. For those near or in retirement you would think that this would have triggered a mass exodus from stocks into less risky but lower-yielding assets. But this hasn’t been the case, as a recent Fidelity study confirms most retirees (those 65 and up) are overwhelmingly staying the course. 

  • Between late February and mid-May, less than 1 in 10 retirees (7.4%) made a change to the allocation within their 401k or 403b retirement accounts.

  • Of that 7.4%, less than a third (31%) moved some of their savings from equity funds to non-equity funds.

  • For all age groups, 6.9% of retirement savers made a change to their asset allocation in the same late February to mid-May timeframe, with 18% moving some money out of stocks. 

We’ll probably never fully comprehend investor behavior. At best it’s unpredictable and at worst bewildering. As this recent study points out, the overwhelming majority of retirees are avoiding short-term decisions with long-term assets and instead are adopting a long-term investing mindset to grow and preserve wealth for financial security irrespective of erratic market gyrations.

Source: Fidelity® Q1 2020 Retirement Analysis: Retirement Savers “Stayed the Course” Despite Economic Crisis

II. COVID-19 Retirement Survey

As the previous study highlights, most individuals across all age groups are not making wholesale changes to their investment portfolios as a result of the COVID-19 fallout. Another study by TD Ameritrade reveals something equally surprising: nearly 47% of respondents have or are considering increasing contributions to retirement accounts. While it seems counter-intuitive to increase investments during down markets, that’s precisely what’s happening.  

Americans have numerous financial levers at their disposal to counteract the financial ravages of the pandemic, from decreasing contributions and increasing withdrawals to borrowing against retirement savings and delaying retirement. The latest research reveals an interesting phenomenon: a substantial portion of the investing public is going against convention and instead choosing the increased contribution financial lever over all other countermeasures. 

Source: Covid-19 & Retirement Survey


I. Why you need to identify your leisure activities before you retire.

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 action: Leisure is an important and undervalued component of retirements. Apart from health reasons, very few desire a retirement absent some form of leisure. Leisure takes on new meaning in retirement, whether that includes pursuing current interests, developing new ones, or finally having the time to pursue put-off dreams. Since many leisure activities have financial implications, it’s important to identify what activities you would like to pursue to get a sense of the financial implications of your choices.

Here are some questions that may be helpful to identify leisure activities:

  1. What leisure activities do you enjoy? 

  2. Do you think they will take on different meaning in retirement?

  3. What do you like about your favorite leisure activities?

  4. What leisure activities do you do that provide connections with other people?

  5. What groups are you part of that you will support or spend time with in retirement?

  6. Is lifelong learning important to you? 

  7. What might you want to learn more about?


Have a Question? Want to chat about it?

Get In Touch

Until next week,

Mark Sharp, CFP® RICP® EA

Mark Sharp Retirement