While saving and investing are key components of planning your financial future, a successful retirement has more to do with income – how much you can generate, as well as for how long. Without a steady and reliable incoming cash flow that lasts for the rest of your life, you could spend your golden years worrying about when the financial well will run dry.
Some in the financial industry refer to investment planning – or the “accumulation†period – like climbing a mountain, with the ultimate goal of reaching the top. But the peak of the mountain is just the beginning of the “distribution,†or income, period.
In many cases, going back down a mountain can be more difficult than climbing up. It can also require a completely different set of skills and tools. That is why it is important to work with an income planner as you approach the time in your life when you’ll be depending on your savings and other income sources for your incoming cash flow.
Investment Planning versus Income Planning
If you are still in your working years, you may have been setting aside money for the future in hopes that it will grow over time. It could also be that you work with a broker or financial advisor who has set up a retirement investment strategy for you.
Investment planning is the process of matching your financial goals and objectives with your financial resources. This is a core component of financial planning that starts with determining your short- and long-term monetary goals and objectives.
There are many different investments that you can choose from. These include:
- Stocks
- Bonds
- Certificates of Deposit (CDs)
- Mutual Funds
- Exchange Traded Funds (ETFs)
- Unit Investment Trusts (UITs)
- Annuities
- Options
- Real Estate
- Gold, Silver, and Other Precious Metals
- Collectibles
While all of these may provide you with the opportunity to generate a nice return, they may or may not be right, based on what it is that you are trying to achieve. For example, even though the value of small-cap stocks could increase exponentially within a short period of time, they can also expose you to the risk of loss.
Therefore, there are many factors to consider before you choose the best investment(s) for your particular needs, such as:
- Risk tolerance
- Time frame until retirement (or other financial goals that you are investing for)
- Other assets / income generators
There are many potential risks that you can face during your investing years, too. These can include:
- Stock market volatility
- Low interest rates
- Sequence, or order, of returns
- Lost opportunity risk (i.e., the inability to invest in something else if your money is tied up in another investment)
- Financial emergencies (such as uncovered medical expenses and/or job loss)
Investment planning will generally change over time, based on how close you are to retirement. As an example, as you approach retirement, you may want to allocate a larger portion of your portfolio to fixed or safe assets so that your portfolio does not suffer a loss in the event of a market downturn.
While investment planning aims to grow and protect assets, income planning focuses more on generating a reliable, ongoing cash flow so that you can pay your essential living expenses, as well as have some extra funds for non-essentials like travel, entertainment, and fun in your retirement years.
It is important to plan carefully for your income in retirement because there are many unknowns – starting with how long you will need the income to flow in. Given longer life expectancy today, it is not uncommon for someone to live for 20 or more years after they’ve left the working world.
Similar to the accumulation period, there are a number of risks that you can face when you are in the income, or distribution, period. Some of the most common risks to your retirement income are:
- Inflation
- Healthcare and long-term care costs
- Financial emergencies
- Early withdrawal fees (depending on when you start accessing your money)
- Loss of one or more income streams (such as the loss of pension income when the worker/retiree spouse passes away)
- Taxes (particularly when accessing funds from a fully taxable account, such as a traditional IRA or 401k)
One of the biggest risks to your income planning is longevity. That is because if you live a long life, your income must stretch out for a longer period of time. It is also subject to all of the other financial risks longer, too.
That is why income planning needs to factor in a long payout period. This can be difficult to do using only investments, though. However, there is one financial vehicle that can continue to pay you a set amount of income for the rest of your life – no matter how long that may be. This can be done using an annuity.
Annuities are designed for paying out a specific dollar amount of income for a pre-selected time period (such as 10 or 20 years), or for the remainder of your lifetime. Many annuities will also allow you the option of a joint income recipient where the income continues until the death of the second individual.
How to Create the Right Investment and Income Plan for Your Objectives
No two individuals or couples have the exact same investment or income goals. Therefore, there isn’t just one single financial vehicle or strategy that is right for everyone across the board.
Regardless of whether you’re in the accumulation phase or the distribution phase of your life, it is essential that you get the right advice – which includes using the proper tools for the specific jobs.
Contact Information:
Email: [email protected]
Phone: 6232511574
Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.
Disclosure:
Investment advisory services offered through BWM Advisory, LLC BWM Advisory, LLC d/b/a Bedrock Investment Advisors collectively ‘BWM’ does not accept or take responsibility for acting on time-sensitive instructions sent by email or other electronic means. Content shared or published through this medium is only intended for an audience in the States the Advisor is licensed in. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copy of this transmission is strictly prohibited. If you receive this communication in error, please immediately notify the sender. The information included should not be considered investment advice. There are risks involved with investing which may include market fluctuation and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making an investment decision. Confidential Notice and Disclosure: Electronic mail sent over the internet is not secure and could be intercepted by a third party. For your protection, avoid sending confidential identifying information, such as account and social security numbers. Further, do not send time-sensitive, action-oriented messages, such as transaction orders, fund transfer instructions, or check stop payments, as it is our policy not to accept such items electronically. All e-mail sent to or from this address will be received or otherwise recorded by the sender’s corporate e-mail system and is subject to archival, monitoring or review by, and/or disclosure to, someone other than the recipient as permitted and required by the Securities and Exchange Commission. Please contact your advisor if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Additionally, if you change your address or fail to receive account statements from your account custodian, please contact our office at [email protected] or 800-779-4183.
