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3-2-1 Retirement Newsletter (2-27-2020)

February 20, 2020

3 insights, 2 findings, 1 action 

5-Minute Read

Thursday is here and it's time to share a bit of retirement income wisdom. 

Here are 3 insights, 2 findings and 1 action to take this week.


I. 5 steps to protect your retirement from Social Security and Medicare cutbacks 

A lot of things in life are outside of our control. This is especially true for retirement. Depending on when you retire you may face adverse changes to public policy that can have a negative impact on retirement security. These changes range from reductions to Medicare and Social Security and changes in Medicaid eligibility to Medicare premium increases and taxing a higher proportion of Social Security.

It's almost impossible to predict if and when any of these changes will occur. The best we can do is have a plan to retain enough flexibility and liquidity to react to any changes. Here are 5 steps you can take to protect your retirement from adverse public policy changes.

Plan. In some cases, there are political or economic realities that foretell possible changes. Taking these into consideration in the planning process can be the responsible course of action. And the best way to do that is through a retirement income plan that outlines strategies needed to address any potential public policy changes. Equally important as having a plan is to monitor it regularly to quickly adapt to changing conditions. 

Partner. Adapting to current conditions is a primary reason to work with a planner who has the skill-set to navigate changing conditions.  A planner can stay current on policy changes, planning opportunities, effective dates, and the impact the change will have on the retirement income plan.

Reserves. There are a host of reasons for maintaining sufficient cash reserves in retirement. Chief among these are funds specifically set aside as contingency savings to provide enough flexibility and liquidity to react to most public policy changes.

Investments.  A commonly held belief is you should reduce the percentage of stocks in your portfolio in retirement to decrease risk. However, doing that can cause more damage than good because while overall risk is reduced other risks like inflation and running out of money increase.  Maintaining a sufficient percentage (50%-75%)  of stock not only combats these two risks but can also increase portfolio returns to provide extra income to support higher spending levels due to public policy changes. 

Income Sources. Adding additional income sources is generally a good move as this can increase spending power, decrease risk and reduces dependency on any source separately. Top candidates for adding income sources are home equity, life insurance, part-time work, and annuitizing other investments.

II. A retirement asset allocation you can actually understand

Have you ever wondered why you have the asset allocation you have? On a basic level you know risk tolerance plays a part, but what does that actually have to do with your retirement? Most people’s asset allocation is largely based on risk tolerance. If you’re looking for an asset allocation strategy based less on risk tolerance, more on supporting a better retirement with the added benefit of helping you remain committed for the long-term because you now know why you're invested the way you are, there’s a simple approach called bucketing that provides a rationale for why each dollar is invested in stocks, bonds, or cash. 

The focus of bucketing is to break up retirement into distinct time increments and choose investments that deliver specified outcomes at different times. Bucketing works by choosing three 10-year time segments representing buckets over the 30 years of retirement. The first bucket holds safe assets like cash and CDs needed for the short-term to be drawn down in the earliest time segment. More riskier assets like stocks and bonds needed for later time periods (the second and third buckets) are invested for growth. 

The bucket strategy will help every retiree understand the specific reason why every single dollar in their portfolio is where it is. You no longer have to rely on risk tolerance to determine the asset allocation that’s right for you. Now it is easy to see why stocks, bonds and cash should be in a retirement fund. Bucketing will help you understand what asset is for what goal. Once you understand you're invested to reach goals not just manage risk you adopt a buy-and-hold mindset, worry less about short-term market fluctuations and remain committed to reaching long-term goals like retirement. 

III. What scares you most about retirement?

For most retirees this is typically the fear of running out of money, a market crash, increasing health care costs, unknown long-term care costs, and rising inflation. Take the short survey to share your retirement concerns. All results are anonymous. I’ll post the survey results in a followup newsletter.

Take the survey


I. Can you fund retirement with home equity?

Retirees who have fallen behind in planning for retirement may need to consider utilizing  home equity, as a significant percentage of personal wealth is in the home. Except for the wealthiest demographic, home equity represents 2/3 of total assets. Research shows most people have not considered home equity when planning for retirement. That’s unfortunate because when used as part of a comprehensive retirement income strategy, home equity can significantly improve prospects for those saving for retirement and those in retirement looking to increase income.

Accessing home equity through a reverse mortgage offers retirees significant advantages that include several tax savings and the ability to diversify by tapping an income source that is not correlated to other investments, such as stocks and bonds. For some retirees  home equity may be the most overlooked funding source that offers the most potential to fund retirement. 

Source: Can you fund retirement with home equity?

II. When work is done: How to pick a place to retire

Deciding where you’ll live is probably one of the most important retirement planning decisions you’ll make. This shouldn’t be surprising because where you live can impact overall living costs, quality of healthcare, general livability, access to amenities, social connections, and ultimately happiness. The report urges all retirees to consider amenities, costs, climate, healthcare, safety, taxes and social connections before picking a place to retire. There are lots of ways to decide where to live in retirement and some of them may be more valuable than others. Where you live in retirement doesn’t boil down to a single financial decision. Costs and taxes are important but so is being happy, healthy, and safe.

Source: When work is done: How to pick a place to retire


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 in order 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 associated with planning: You need to determine the factors critical to maintaining a personally satisfying retirement.

Factors to consider:

  1. Connectivity: Both long life and happiness are tied to the quality of your connections.

  2. Challenge: Lifetime learners have the attitude their quality of life will rise as they continue to learn.

  3. Curiosity: Intrigue guarantees a pulse in the brain and a reason to keep bodies healthy.

  4. Creativity: Creative engagement increases joy in life and keeps brains active. 

  5. Charity: Being of service to others can improve the quality and longevity of life.


    Have a Question? Want to chat about it?

    Get In Touch

    Until next week,

    Mark Sharp, CFP® RICP® EA

    Mark Sharp Retirement