Retirement Income = Retirement Lifestyle

In my last article I talked about financial plans (see “Do You Have a Plan for Your Financial Future… or Just a Portfolio?”). Today I’d like to dive more deeply into the Income Plan portion of creating a financial plan for your retirement years. Because once you retire, income really is the key to being able to live the lifestyle you desire.

How much money do you need to have in order to retire? 

Many financial professionals are hyper-focused on asset accumulation and reaching a “magic number” of assets needed based on the client’s age, health and retirement plans.

What I have seen is that it’s not about “How much do you have?” The important thing to ask is “Do you have the ability to generate the income you need, without running out of money, for the rest of your life?” And this is a very different question.

Many times people who don’t see themselves as “wealthy” come into my office and ask when they can retire. They’re shocked to find out they can retire today if they want to.

Others come in who have $5 or $6 million. They’re equally shocked to find out they cannot retire any time soon. Why? Because they haven’t done the proper planning. Their assets are not positioned to create the needed income, especially protected income, which is income they can count on regardless of what’s happening in the financial markets.

What should an Income Plan address?

There is a lot that an Income Plan should accomplish:

• Provide protected income – The foundation of your Income Plan needs to be having enough income for life. When I create an Income Plan, I ensure that you have enough protected or guaranteed income to, at a minimum, cover all your basic needs (food, shelter, clothing, medical, transportation, etc.). If your stock and bond portfolio becomes worthless, you will still have enough income coming in to cover the basics. 
• Support desired lifestyle – After the basics are covered, we then look at how to cover all of the other things you want, such as travel. 
• Address risks – In addition, your Income Plan also needs to address the foreseeable risks that can get in the way. What if you live longer than expected? What if the market crashes? What if you need expensive care? If your spouse dies, how will that impact your income? Sometimes when one spouse dies, the surviving spouse loses 30 to 55% of their household income.
• Minimize tax bill – There are things you can do to insulate yourself from future changes in the tax code.
• Close income gaps – Ideally you will begin planning for your retirement years long before you stop working. That way if projections show that your assets are not likely to produce the income you need, your Income Plan can address what you can do now to close that gap. 

Counting on a sure thing 

Once you retire you’re turning your asset portfolio into income. Protecting these assets is the key to success. Having a strong foundation of protected income gives you the freedom to spend more, invest more, give more and do more, with the confidence that comes from knowing you can afford to do so.