Is Your Income Strategy on the Right Track?

Is your retirement income plan well-suited to your financial needs and goals? Whether you’re creating a personalized strategy or examining one, it’s an important question to consider. After all, any income gaps or shortfalls could lead to real financial setbacks.

With that said, here are some markers you can use to evaluate your income strategy.

Evaluating Your Retirement Income Plan

Are there any income gaps? Many retirement plans are incomplete. In many cases, they don’t have enough income sources to cover all monthly living expenses. If you would like to maintain your present lifestyle, it’s important to estimate what you’ll need coming in – especially when accounting for the effects of inflation.

This can be accomplished by weighing projections for monthly expenses (what we think of in 30-day financial cycles, like mortgage payments and utilities) and miscellaneous costs against the income you’ll have to pay for those needs. Our “building an effective retirement plan” blog post can help with creating those spending projections.

One key is to distinguish between sources of permanent income – or guaranteed income from Social Security, pensions, and income vehicles like annuities – and maybe income – or income drawn from more volatile sources, like stocks and bonds. Once you have done estimates for income and sources, determine gaps, if any, between your income and the needed income to maintain your lifestyle. Then it’s a matter of determining how to fill those gaps.

Does your strategy rely too much on volatile investments? Retirement income planning isn’t the same as investment planning. For one, investment planning focuses on different markers, including net-worth, investor returns, and investment values. Retirement income planning uses the marker of monthly income to determine goals and means to attain them.

Let’s go back to the discussion of permanent income versus maybe income. Because monthly living expenses are recurring fixed costs, an income strategy should leverage permanent income sources to pay for them. Should the market swing down, maybe income sources will dip in value – which will dilute the income you can draw from those assets. And timespans for recovery are far shorter in retirement than when we’re accumulating assets during our working years.

In short, using maybe income for monthly living costs can leave your retirement financial security too exposed to market risk. Your income strategy should include a guard against market downfalls, suitable to your age, needs, and situation.

Does your strategy account for longevity? Life expectancies are on the rise, and it raises the possibility of longevity risk – or running short of money in retirement. On the whole, a retirement lifetime can last for 30 years or even longer. It’s critical to ensure you’ll have enough income to pay for all those years you may live.

If you’re worried about outliving your money, annuities can help shore up financial security with their income guarantees. An annuity is one of the few vehicles which can generate permanent, guaranteed income for as long as you live. Depending on your needs, your strategy can adopt immediate or deferred annuity income sources to last throughout your golden years.

Need Help with Your Income Strategy?

As mentioned, retirement planning is a different process than investment planning. It may be helpful to work with a qualified income strategist. They can help you determine your needs, goals, and circumstances, and then create a strategy suited to your requirements.

If you’re ready for personal guidance from a financial professional, SafeMoney.com can help.

Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.