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Thayer Partners Blog

What is Retirement Income Planning?

[fa icon="calendar"] Sep 30, 2015 11:30:00 AM / by Chris Wilmerding

Chris Wilmerding

Retirement_PlanningA lot of folks have a hard time preparing for retirement. They’re not sure if they’ve saved enough, how they’ll cope with the rising costs of health care, and worry they’ll end up becoming a burden on their families.

This is where retirement income planning comes into play.

What is Retirement Income Planning? It is, put simply, a well thought-out plan that helps manage and maximize your various income streams so that you can potentially meet your expenses in retirement and avoid running out of money in retirement.

Retirement income planners differentiate themselves by focusing on your projected cash flow to help ensure you can maintain your lifestyle in retirement. They do this by using the whole toolkit available, including:

  • Dividends, interest, and appreciation from of your investment portfolio
  • Bank savings accounts
  • Social Security
  • Income annuities (requires some planning ahead, e.g. 10 years before retirement)
  • Old life insurance or variable annuities converted into income streams
  • Part-time work in retirement doing something you love (this can make a HUGE difference)
  • Pensions (rare these days, but good if you have one)

A retirement income planner will help you create retirement income strategies that leverage all of the revenue streams available to you to in retirement so that you can potentially have a more comfortable retirement.

This differs from the services of many financial advisors in that it takes into account much more than just your investment portfolio and lays out how to potentially convert your assets into income streams.

How Does Retirement Income Planning Help You?

The most obvious benefit of this type of “complete picture” or comprehensive approach to managing your retirement revenue streams is that it helps diversify and minimize your risk of running out of money in retirement.

How so?

A true retirement income planner will take a look at your monthly expenses, compare them to your income sources (and often underutilized assets that could be producing income for you) , and come up with an action plan to guide you to financial stability in retirement.

For example, I recently met with a man who had, unfortunately, not managed to save up a lot of money for his retirement, only having about $250k in assets. He had stopped his 401k contributions early on, was in debt, and was still paying for his children’s school. This 56-year-old man was in a very tight spot financially, and completely underprepared for retirement.

However, there was hope. After reviewing the client’s Social Security statement and conducting some analysis, I helped him optimize his collection strategy.

Still, that alone wouldn’t be enough to provide financial stability in retirement. More would be needed to complete this man’s path to a more financially secure retirement.

So, the next step was to convert some of the client’s assets into a deferred income annuity. This deferred income annuity acts as a kind of synthetic bond, only even more reliable, creating a steady income source that would kick in for the client in ten years, just after his retirement starts.

A well-crafted retirement income plan that focuses on creating and optimizing several income streams, can help better prepare you for retirement.

What Other Steps Might Be Needed?

Other steps that a retirement income planner might suggest to you include:

  • Evaluating debt pay down strategies. How, when, and what you pay down matters. It’s not just about paying down the highest interest debt first.
  • Providing advice about the best ways to save your money after maxing out your 401k or other retirement savings accounts. Again, the order of savings is really important.
  • Refinancing your mortgage. Is a 15, 20 or 30 year your best option?
  • Deciding how to pay for college. If you are saving for college before you max out on your 401k, that’s probably a big mistake.
  • Review options to pay for health care in retirement. Is Long Term Care insurance really necessary?

The major goal is to do what it takes to create a financially stable, viable plan for funding your retirement and to limit your risk of running out of money in retirement. This goes far beyond the simple “save more money” strategy.

* Advisory services offered through Commonwealth Financial Network, a Registered Investment Adviser.

Actual performance and results will vary. These case studies do not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted.

Retirement Income Analysis

Topics: Retirement

Chris Wilmerding

Written by Chris Wilmerding

Chris Wilmerding is Principal of Thayer Partners, an independent investment management firm located in Westwood, MA providing financial planning and wealth management counsel to individuals and their families.

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