Retirement Guys: Have a written retirement income plan (Part 2)Written by Nolan Baker Mark Clair | | firstname.lastname@example.org
In part 1 of our series on having a written retirement income plan, published March 8, we outlined specific tools (stocks, bonds, mutual funds, annuities, banking products, etc.) that can be used as part of the planning process. We also highlighted the importance of focusing on what is important. The tools are just the vehicles to help an investor reach the experiences he or she wants in life. And we stressed the importance of creating a written retirement income plan as the first step. Here are the steps to create that written plan.
Mark and I recently sat down with Dan Couture, a business coach and national speaker on retirement income. A few phrases he said stood out to us. First, “There is no retirement without income,” and “To stay retired, you need to have reliable and sustainable income.” What he said reinforces the important message we promote all the time: All investment decisions need to be made based on current and future cash flow.
The challenge many people face is those are often not the messages they hear. Here are a few recent financial headlines: “The only 5 investments you need to own” or “Big money is moving to cash and so should you.” Reading these headlines may damage an investor’s confidence in their current plan leading them to want to change what they are currently doing. Is this a smart idea? Probably not. Chasing results and headline news can be a costly mistake.
In the majority of cases, the goal is to save up sufficient assets to generate enough income to fund a goal like retirement.
To create a written retirement income plan, write down the sources and amounts of both reliable and variable incomes. Reliable incomes are Social Security, pension and lifetime income from annuities — payments that generally stay the same for life. Variable income is the money expected from investments. This money can vary from month to month or year to year.
Now review each source of income and identify specific ways to increase the predictable income being generated. For example, a married couple has over 700 possible combinations of when to draw Social Security benefits. The decision between the best and worst case can often cost hundreds of dollars a month of missed income. Pension income can be affected based on factors such as lump sum payouts or survivorship options. Just because everyone else at work took this option does not mean that is the best choice for your family.
Variable sources of income can usually be improved by performing a yield analysis. Yield is the amount of income generated by dividends and interest. Identify lower interest earning accounts and investments and consider alternatives that create additional predictable income. Both safe and risky strategies are available. For example, instead of having mainly growth stocks that pay little to no dividends, consider adding several high-quality dividend-paying stocks. A 2 percent increase for a retired couple with $300,000 of investments would generate $500 extra a month of income.
A third area to focus on is keeping more of what you earn. Eliminate excess fees and expenses as often as possible and avoid paying commission to buy and sell investments. Consider the options available that can be used to reduce and eliminate the taxable income paid in retirement. Don’t assume that is your “fair share.” Get a second opinion if needed.
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguysnetwork.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. 419-842-0550