Designing a Plan for Income in Retirement

Most investors decide how much risk to take in their portfolio based strictly on their feelings. How they “feel” when their investments lose value often dictates their risk tolerance, which also determines the upside potential of their portfolio. While feelings can be a starting point, they can change from day to day and don’t form the basis of a prudent decision making process.

Let’s face it; investors only take on risk because they feel they have to. If you inherited millions of dollars, would you invest your money and put it at risk or park it in a bank account knowing you have enough to live the life you want? Ideally, you should only take on the risk necessary to pursue your goals, but the problem is, you probably don’t have the information you need to decide how much risk that is.

It’s when you feel you’re not saving enough to reach your goals that the subject of risk and return comes up. The problem is, you don’t KNOW if this is true. You don’t know when you can retire or how much money you can spend after you retire. That’s because your current investment statements only show short-term results. They tell you little or nothing about how those results will affect your long-term financial success.

To answer this question you may benefit from a Retirement Income Plan (RIP) coupled with an investment strategy that takes the amount of risk necessary to address your goals. An RIP can help you tune out short term market fluctuations and stay focused on the long-term investment returns needed to pursue your goals.

What is a Retirement Income Plan

Think about breaking your income need in retirement into two buckets:

Survival expenses: You can’t retire if you can’t pay the bills. Our first step is to determine how much income you will need to cover your monthly expenses. If possible, you might want to cover fixed expenses with guaranteed income such as social security and pension so you never have to worry that you can’t pay the light bill.

Lifestyle expenses: It’s not much of a retirement if all your money goes to pay the bills. An enjoyable retirement would include enough income to do the things you love, buy the things you want and help the people you love. In other words, all the things that make retirement fun! Your goals are unique to you but whether they include travel, fixing up your home, buying cars or boats or contributing to your favorite charity or family member, we’ll help you determine if you will be able to do so without running out of money. Since most lifestyle expenses are sporadic and not as high priority, your investment portfolio and retirement accounts are good choices to fund these goals.

Once we know what you need to retire we have to identify the value of your current savings and investments, and what we expect they will be worth at retirement. Well ask you to gather your current financial information, which would include current investments, savings and retirement accounts. We also take into account your projected social security and pension income and the allocation of your current investments. Finally, we'll crunch the numbers to answer the question everybody has:

“Can we retire the way we want without running out of money?”

We can’t make guarantees, but we want to be as confident as possible in the answer we give you. We’ll determine your POS number (Probability of Success) by using a Monte Carlo Simulation, which simulates thousands of trials using different combinations of returns during your retired lifetime.

If the numbers aren’t adding up, you have options to improve your results. The include backing up retirement, retiring on less, saving more or taking on additional risk during your working years.

Additionally, your advisor can review a number of scenarios to determine the results of various financial recommendations such as Roth conversions, changing your social security claiming age, adding annuity income to the mix or changing the allocation of your investments. If any of these financial strategies improve your POS number your advisor can build them in to your “Recommended Scenario”.

Regularly reviews of your plan

A Financial Plan needs to be reviewed regularly to be current and relevant. We’ll update your plan annually, or as your life changes. You’ll have 24/7 access to your plan via a secure website, providing at a glance a detailed accounting of your investments, debts, insurance policies, savings accounts and net worth. Most importantly, you’ll be able to review the customized plan that you and your advisor have developed, based on your goals and input. There’s also a tool that will allow you to model potential changes to your plan such as your retirement age, spending in retirement or your current savings rate, and immediately see the impact on your plan.