How you can generate a reliable income stream, minimize taxes and preserve your wealth during your retirement years.
Retirement offers you the chance to finally spend your time and money exactly as you want. But you need a roadmap to ensure that happens.
“A financial plan, especially a written one, takes the emotion out of the decisions we make before and during retirement,” says Bill Scofield, Director of Wealth Planning for Regions Private Wealth Management in Memphis, Tennessee. “We can look at the numbers and say, ‘Here are the needs we project, here are the goals, and here’s what we have to do to get there.’”
First Steps
It’s important to start work on a retirement plan well before retirement, Scofield says. Doing so will give you the most options and flexibility. For example, you may decide to adjust your asset allocation or sell particular investments a few years before retirement. Business owners and corporate executives often have unique retirement-planning concerns that are best discussed sooner than later.
If you fail to plan — even if you are very wealthy — you may worry about how long your assets will last. Even worse, you may have to make lifestyle sacrifices as your retirement progresses. But, take heart: Even if you didn’t start early enough, you can still take steps today to create or improve your plan.
Putting It Together
Although your retirement savings plan should start as early as possible, serious retirement income planning often doesn’t start until one’s late 40s or early 50s, Scofield says, as you’ll likely start to get a sense of what your retirement lifestyle might look like and how your retirement income sources and accumulated assets might pay for it. By starting your planning at this stage of your life, you have the time to make decisions that can make a big impact on your lifestyle years down the line.
Using your current lifestyle as a base, you can imagine what expenses might diminish or disappear — a child’s college expenses or mortgage payments, for example — and which might increase, like travel or healthcare costs.
You can then make projections about your income. What do you expect to receive from your stake in a business or land ownership? Rental property income? Retirement plans or other investments? Pensions? Social Security?
For clients whose income expectations and needs are fairly closely matched, it helps to do precise planning that projects the income stream and expenses for each year. If there is an income shortage, then your financial advisor can suggest ways to bring them together — such as changing the investment mix or adjusting your spending goals.
It’s a good idea to review your retirement income plan at least once a year. You’ll also want to review the plan after a major upturn or downturn in the markets or in response to a significant life change, such as leaving a job, receiving an inheritance or getting divorced.
Investing With Care
Affluent individuals and couples often have unique concerns and more options for how to generate income. Smart investment management is key.
- Do you need to access more than the income off your investments (the dividends and interest) or will you periodically spend down your principal?
- How much can you afford to withdraw from your principal at different stages in retirement while ensuring your savings last throughout your lifetime? How might this affect the amount you can give to charitable causes or heirs?
- How should you invest your assets based on your risk tolerance, time horizon, market conditions and other factors?
- Which assets should you convert into income, and when?
Knowing the answers to these questions will help you and your wealth advisor to decide the right investment strategy to take.
This is the first of a two-part series on designing and maintaining a retirement income plan. Read part two here.
