HAVING THE WRONG INCOME PLAN IS FATAL!

Welcome to the fourth article in our Retirement Planning Series, “These Can Be Fatal To Your Retirement!”

In the first article, we discussed how ignoring the “Sequence Of Returns” (SOR) during your retirement planning can be fatal to your portfolio.
SOR is the understanding that, if you suffer portfolio losses early in your retirement, your risk of running out of money is increased dramatically. So, if markets are high at the beginning of your retirement, be sure to position your portfolio as to avoid early losses.

In the first article, we discussed the “Sequence Of Returns” (SOR). SOR is the understanding that if you suffer portfolio losses early in your retirement, your risk of running out of money is increased dramatically. In the second article, we discussed that unnecessary portfolio losses reduce the future value of your portfolio by $100,000’s of dollars.

In the third article, we discussed that unnecessary fees are the silent killer of many retirement portfolios. It’s not uncommon that retirees will unnecessarily pay fees in excess of a $100,000 during their retirement. In this article, we are going to discuss your retirement’s most important asset, reliable long-term income streams. Retirement is the longest period of unemployment in your lifetime! If you make a mistake on setting up your income streams, it’s fatal to your retirement!

The Three Most Common Mistakes Retirees Make Are:

  1. Not accurately knowing the monthly costs to live your desired lifestyle
  2. Using the wrong products for the job
  3. Using the wrong withdrawal rates

If you plan on using a market-based income approach, Dr. Wade Pfau from the American College recommends that you use a withdrawal rate around 2.00%.

If you use an annuity-based approach, you can use a minimum withdrawal rate of 4.00%.

Let’s review an income stream example over the past 19 years.

The table below goes back to the year 2000. At that time, it was common to use a 5% withdrawal rate for market-based income planning.

Income Stream Example going back 19 years

Look what happened to $1,000,000 invested into the S & P 500 in 2000 while taking withdrawals of $50,000 per year. Then, look at what happens to the same $1,000,000 and the same annual withdrawals of $50,000 when invested without market risk where the returns were “Linked” to the S & P 500.

After taking withdrawals of $950,000 over the 19 years between 2000 and 2018, the market risk approach is left with a balance of only $327,309. The no market risk approach has a balance of $771,216 for a difference of $443,907!

Unfortunately, during those 19 years, many retirees that were using the market-based approach, lived with the fear of running out of money!

The point is, that the right product along with the right withdrawal rate make a massive difference in the quality of your lifestyle financially, emotionally and physically!

Income is your retirement’s most asset, done wrong, can be fatal!

Here Are the Eight Steps You Should Follow To Set Up Your Income Streams:

  1. Take the time it takes to calculate what it costs you each month to live your desired lifestyle (Cost To Be You-CTBY)
  2. Take an inventory of your secure income streams. (ex. Social Security and Pensions)
  3. Subtract your CTBY from your current secure income streams
  4. If your answer is negative, you’ll be relying on your accumulated assets for income
  5. Multiply your monthly income deficit by 12 and then divide by .04
  6. The answer to #5 dictates how much of your portfolio that you’ll need to allocate for income generation
  7. Factor in your life expectancy, taxes and inflation
  8. Lastly, compare the typical market risk income plan options to the insured income options the provide longevity credits

A superior income plan is set up to last at least as long as you do, avoids losses, has the ability to increase over time, and depending on your assets, have some tax advantages.

If your Social Security and Pension are not enough to pay for your desired lifestyle, follow these eight steps!

Long-term reliable income is your retirements most important asset! Retire With Certainty!

About the author

Richard Kelly - Certified Senior Advisor in Monument, Colorado
Rick Kelly
Certified Senior Advisor at 800-975-1064

Rick Kelly, CSA is an Independent Certified Senior Advisor with offices in Monument and Littleton, CO.  He helps Boomers and Retirees live healthier retirements by designing safer and more optimal portfolios along with secure retirement income streams.

Rick Kelly, CSA
325 2nd Street, Suite I
Monument, CO 80132