Income Planning: The Foundation of Retirement Planning
Income planning is the first step in closing the difference between where you are today and where you hope to be tomorrow. It’s where we begin the journey on the road to retirement, or even further into retirement.
Creating passive income in retirement
The bottom line of any income plan is to see if your retirement assets can create what once was known as “mailbox income,” passive income that arrives like clockwork each month during retirement (such as Social Security or a pension payment).
In retirement, we need this consistent income flow—just as we did in our working years when it arrived via a regular paycheck—to meet not just our everyday expenses but also the frills we hope to enjoy once we have the time to enjoy them. Admittedly, there likely will be some less-pleasant expenses in our later years. Medical costs and long-term care come most immediately to mind, as might the need to replace a car, a roof, or any other big-ticket expense that comes along in life. A comprehensive retirement income plan must also build in a buffer for both expected and unexpected expenses.
Choosing your retirement income streams with care
This planning process also deals with choosing how and when to take income from the retirement nest egg we spent years building. What are the most advantageous accounts—based on taxes, market performance, and interest rates—to pull from first? When do we take income from our 401(k), IRA, stocks, bonds, or mutual funds*? Is there a plan in place that allows our assets to keep pace with (or stay ahead of) inflation?
Addressing the above questions begins with an estimate of what you expect to have flowing in and what you think will be gushing out, starting with your first years in retirement.
True income planning is much more than budgeting, however. Household budgets deal with bill-to-bill, month-to-month. Retirement income planning, on the other hand, takes a big-picture look over a period of twenty or more years. It establishes a plan by which we know how we will replace the income that disappears when the regular paycheck does. It tells us what amounts of fixed income will be available, and how and when to take additional income from other sources when necessary.
But to fully view that big picture, we must first briefly spend some time weeding through the details of routine budgeting, something that has to be done in order to make intelligent decisions about our income needs.
Interested in learning more about taking control of your retirement?
Meet Brett at one of our local complimentary retirement planning luncheons in Omaha and Lincoln, NE or set up an introductory call today!
*Mutual Funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing in Mutual Funds. The prospectus, which contains this and other information about the investment company, can be obtained directly from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
Not associated with or endorsed by the Social Security Administration or any other government agency.
Maximizing your Social Security Benefits assumes foreknowledge of your date of death. If as an example you wait to claim a higher monthly benefit amount but predecease your average life expectancy, it would have been better to claim your benefits at an earlier age with reduced benefits.
