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3-2-1 Retirement Newsletter (1-30-2020)

3 insights, 2 findings, 1 action (January 30, 2020)

5-minute read

Happy Thursday!

Welcome back to another 3-2-1 Thursday. I'm on a mission to deliver the most retirement wisdom per word of any newsletter on the web. I hope this week's edition keeps pace.

 Let's get into it. Here are three insights, two findings, and one action for the week...


 I. What you need to know about risk tolerance and risk capacity

Risk tolerance and risk capacity are two concepts that need to be understood before making retirement investment decisions. Together, the two help determine the amount of risk that should be taken in a portfolio of investments. Risk tolerance is the emotional or psychological willingness to take risks, while risk capacity is the ability to take risks, without jeopardizing financial goals. 

II. The delicate balance between goals and risks

It’s often said that perfection can be the enemy of good. This can apply within the realm of goals and risks where a singular focus on risk can be the enemy of achieving goals, whether too little or too much. Set goals and determine the appropriate risk level necessary to achieve the goal. No more or no less. This is the essence of goal-driven investing.

III. How risks change in retirement

Risks are constantly changing before and during retirement. Your ability to earn income can change, the market changes and your behavior with long-term investment strategies can change. Some new risks during retirement could include unexpected longevity, inflation, health care, and unplanned expenses. Work opportunities can become scarce as you age, and the risk of making poor financial decisions can increase. Add to that the possibility of poor market performance, as assets are spent and not as easily replenished. Be aware of these changing risks and prepare for them as much as possible before retirement.


II. The REAL reasons why people retire

Most assume they will retire on their own terms, planning to work as long as necessary to meet financial and non-financial goals. However, according to two retirement studies, this belief doesn’t hold true for most retirees. Most people retire at an age earlier than planned and often for reasons beyond their control. The studies inform that only 36% retire on their terms, while 49%, the majority, retire based on circumstances beyond their control.

  • About 49% retired based on circumstances beyond their control. Broken down, this shows that 18% retired due to health, 14% out of personal need, 9% from job loss, and 6% due to layoffs.

  • Only 36 percent retired because they either reached retirement age or wanted to retire.

  • The likelihood of citing health or disability is inversely related to income: the lower the income, the more likely to cite health as an issue, and the higher the income, the less likely to cite health as an issue.


2012 MetLife Mature Market Institute study “Transitioning into Retirement"

2011 Risks and Process Retirement Survey

II. Why do people retire earlier or later than expected

As we've seen, when you retire often depends on circumstances beyond your control that can lead to an earlier-than-expected or later-than-planned retirement. Health reasons (37%) and fewer employment opportunities (16%) are major reasons for retiring earlier than expected. The main reasons for delaying retirement include the salary needed for day-to-day expenses (27%), the need to save more for retirement (11%), and 13% who did so because they enjoyed working and wanted to stay active. For those approaching retirement, these stats should be enlightening and concerning, as studies indicate that almost 6 in 10 did not retire when they expected to retire. Of those who retired earlier than expected, 53% retired because of circumstances beyond their control.


2012 MetLife Mature Market Institute study “Transitioning into Retirement"


I. One task you must complete to successfully transition into retirement

Well-established research indicates there are 15 developmental tasks you need to complete while still working to transition into retirement. 

We’ll look at one of these tasks for our action item this week and reveal a new one each week.

The completion of these tasks does not suggest a person should retire. However, failing to complete the tasks will put a successful transition into retirement at risk.

This week’s task is related to relationships: You need to consider how the various aspects of retirement might positively or negatively affect your relationship with family and friends.

Why it’s important

  • Financial: 

    • Unless you have enough money to last through retirement, you’ll have a stress-filled, unhappy retirement that will impact those around you.

    • Assuming you have the financial resources, you’ll be able to offer financial assistance to friends and family.

    • Assuming funds are available, you have the financial means to travel to spend more time with family and friends.

  • Non-financial: 

    • Stepping away from work can sever ties to a built-in social network of colleagues and acquaintances.

    • You’ll have more time and energy to develop and nurture relationships. 

    • Your retirement experience can leave a positive or negative impression on what friends and family may expect in retirement.

       WHAT'S NEXT?

      Have a Question? Want to chat about it?

      Get In Touch

      Until next week,

      Mark Sharp, CFP® RICP® EA

      Mark Sharp Retirement