Income Planning vs Investment Planning

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Discover how income planning differs from investment planning for retirement. Learn to secure your future with safe money solutions. Explore more! There are many decision-points leading up to retirement. Much of this process relates to financial planning. Should we wish to maintain a comfortable lifestyle, we must have sufficient income to support it. An effective retirement plan will lay out not only income goals we need to achieve, but also personalized strategies to sustain income security. In earlier years, many of us focused on investment strategies to build up wealth. You may have worked with a financial advisor to find investments or investment packages with solid return potential over time. Or you may have engaged in investment planning yourself. However, retirement brings change, and this includes a shift in financial planning focus – an emphasis on planning for income. Here’s a quick look at how income planning is different from investment planning – and why you may want to incorporate an income-focused retirement planning approach. Differences of Income Planning versus Investment Planning They rely on different planning markers. One primary difference is that income planning and investment planning use different benchmarks. In the case of retirement income planning, monthly income is used as a means to set goals and gauge success. On the other hand, investment planning depends upon net-worth related markers to measure progress: asset values, investment returns, and investment volatility. In the past, we have mentioned insights from Dr. Robert C. Merton, an economist and Economics Nobel laureate. Dr. Merton is a founding father of modern finance and a widely-respected authority on retirement planning matters. In a Harvard Business Review article, The Crisis in Retirement Planning, he observes that investors often rely on the wrong markers for retirement planning. With the disappearing numbers of pensions, many pre-retirees are relying upon defined-contribution plans, such as 401(k) plans, for retirement saving purposes. But, as Dr. Merton notes, the reporting markers for defined-contribution plans are those net-worth markers mentioned earlier – markers which use the language and measurement of assets instead of income. “Our approach to saving is all wrong. W