Income planning at retirement is the gradual shift from the accumulation phase to the distribution phase of an investor's life cycle. It addresses all aspects of pre-and post-retirement issues and the evolving risks associated with pursuing short-and longer-term financial goals.
Why is retirement income planning so important? According to a Federal Reserve Survey, the life savings of 76 million baby boomers will be exposed to a series of risks:
- Savings risk: Under-funded employer-provided retirement accounts and consumer saving, growing debt and lack of liquid assets
- Market risk: Investment objectives not in line with financial goals, market volatility when you need to be seeking higher portfolio returns.
- Solvency risk: Pension plans and medical benefits being reduced or eliminated; the reduction of social security.
- Longevity risk: People are living healthier lifestyles; a couple, age 65, has a 25% chance of one person surviving to age 97.
- Inflation risk: 3% annual inflation reduces purchasing power by 59% over 30 years; medical inflation increases at a rate of over 8% annually.
- Emotional risk: Can you meet your “income for life” needs?What quality of life and health can you expect? Who will care for your family or friends once you are no longer in the picture?
- Drawdown risk: Can you afford your lifestyle at retirement?Can you minimize your expenses? What are the other options?
What does income planning do? It defines where you are today and helps us determine what it is going to take to get you to where you want to be tomorrow (in the future). A financial plan will address personal issues head on. Ask yourself the following questions? How much money will you have at retirement? How much do you need to save today? How much of an estate can you leave? Income planning also takes into consideration liability and risk management.
