Retirement Income Planning is the phase of retirement where you’re five years away from or in retirement. It is a critical time to make decisions on creating monthly income you will be living on for the rest of your life. For most of your life, you’ve been saving money in your 401(k), 403(B), Roth IRA, etc. in preparation for no longer having to work. How do you take these resources along with any pensions and Social Security, investable assets, annuities, life insurance and create a coordinated plan that helps you, and possibly a spouse, not run out of money and leave behind a desired legacy?
Our Envisioneering™ Retirement Income Planning (R.I.P.™) does just that. First of all, we need think about your goals and how much you’re going to spend on those goals without running out of money.
You will go through several stages of retirement, but how long will these stages last This unknown is called longevity risk.
While you may be focused today on the “go-go phase of retirement”, with travel and plans for the golf course; there will likely be another phase where you’ll slow down a bit. You might find some new interests or priorities could change. As you age, you’ll find yourself slowing down with rising costs and things like healthcare and long-term care needs. It’s important not to run out of money by spending too much in the initial phase. When taking this approach, we use the phrase time segmentation, it allows us to think differently regarding when to take your Social Security, possibly turning some of your money into lifetime income through annuitization and investing differently across the different time horizons according to prudent investment principles.
Key retirement risks to have a plan to combat
Retirees are now having to deal with longevity, inflation, investment, and behavior risks that were not as significant issues for their parents. To give one example: At 3%, $1 today will only be worth $.40 in 25 years. When considering these risks and how to combat them, your risk alignment and time horizons need to be carefully considered and planned for.
Retirees are now having to deal with longevity, inflation, investment, and behavior risks that were not as significant issues for their parents. To give one example: At 3%, $1 today will only be worth $.40 in 25 years. When considering these risks and how to combat them, your risk alignment and time horizons need to be carefully considered and planned for.
The Time-Segmented strategy divides your retirement into separate segments, each with a different investment objective and time horizon. The number and length of segments are customized to your cashflow needs. After each segment is spent, the next segment will then be converted to a similar product as was used in the first segment. This allows your long-term money to stay invested in the market for potential growth.
Other Issues Needing Consideration During Retirement
It seems like the most complicated issues we must deal with happen after we turn 65. Medicare is probably one of the most complicated decisions that we all must eventually make. There are Medicare Part B and D options, Medigap plan vs a Medicare Advantage plan. However, many retirees find out too late that there is a premium penalty on your part B monthly costs for taxpayers who continue to be “high earners”. This is called the Income Related Monthly Adjustment Amount (IRMAA) .
The current basic Medicare Part B premium is $134/mo. That cost is based on your Modified Adjusted Gross Income (MAGI) from your tax return 2 yrs. ago and is adjusted as you proceed through retirement. For incomes over certain thresholds there is a surcharge on Medicare part B that can range from $50/mo. to $300/mo. per taxpayer. I have seen situations where the additional income from the Required Minimum Distribution (RMD) moves taxpayers into one of these IRMMA tiers.
As you can see there are many moving parts to consider in a properly designed Retirement Income Plan. Not only is it important to consider these variables when creating a plan, it is also important to have someone to manage the plan moving forward.
Your personal income plan for retirement should not be based on a single asset or account but rather a host of factors unique to you Some advisors only focus on the accounts that they can manage. A good retirement income plan takes into account all of your assets and income sources, regardless of whether I am managing them or not. Recognizing that your income needs may vary over the stages of your retirement and market conditions may change, it is important to have someone you can trust, depend on, and be accountable to when preparing for retirement. Many advisors and software just take your expenses today and inflate them at some agreed upon rate. When, in fact, you may want to spend more in the early years while you are in good health and have lots of energy, then slow down later. How many different types of savings and investments do you have and what tax liability do they present? To help ensure you’re poised for lifetime income, together we can develop a personalized income plan that will incorporate your unique goals, objectives and values.
Ready to find out if Envisioneering™ Retirement Income Planning (R.I.P.™) is right for you? Click here.
