Designing a Retirement Income Plan

How your Regions Wealth Advisor can help you 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. Building a retirement income plan is one of the best ways to help ensure a financially secure and rewarding retirement. This planning will answer key questions such as: How much income do you need each year or month in retirement to achieve your lifestyle goals? Which assets make sense to build your income stream from, and how do you maximize that income? How do you protect your wealth from risks such as healthcare costs, rising inflation and market downturns?

“An income 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

The ideal time to start working on such a plan is well before retirement, Scofield says, because that will give you the most options and flexibility for designing an effective income and investing strategy. You may decide, for example, to adjust your asset allocation to reach your desired income stream or to sell particular investments a few years before retirement. Certain individuals, such as 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

Some people start to think about retirement goals in their 20s and 30s. But serious retirement income planning often doesn’t start until the late 40s or early 50s, Scofield says. That’s when you’ll likely start to get a sense of what your retirement lifestyle might look like and how you 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.

Your Regions Wealth Advisor can guide you through the key considerations and decisions of your specific situation. 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? Your Wealth Advisor can build a customized team of experts, from investment specialists to real estate management experts, to help address your personal situation. A Regions Wealth Assessment® can also help greatly in the retirement income-planning process.

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 Wealth 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 retirement-planning concerns and more options for how to generate their 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?

Navigating Low Interest Rates

Many retirees worry about how to generate sufficient income when interest rates are low. “When the interest our clients can receive from CDs, bonds or the like is not sufficient, then our clients worry they’ll have to start digging into principal to meet their needs,” Scofield says. But selling assets or reducing your spending are not the only ways to address this problem, he adds. Depending on your risk tolerance, more of your portfolio could be invested in assets that create larger income streams, such a s high-quality dividend-producing stocks, real estate investment trusts (REITs), or Treasury Inflation Protected Securities (TIPS).

Managing Your Taxes

Tax planning is also important for retirees who want to maximize their income or leave a legacy. Some affluent investors have the bulk of their wealth in taxable assets rather than in tax-advantaged accounts such as a 401(k) or IRA. “Part of the challenge is to be more efficient in how we invest and harvest those assets,” Scofield says. That includes being strategic in the timing of asset sales and shifting assets into tax-efficient vehicles like municipal bonds or tax-exempt funds, when appropriate.

You also must figure out which accounts and assets to access in which order. It often makes sense to draw down taxable accounts first in order to preserve savings in tax-advantaged accounts. Benefits to that approach: If that money is later given to a tax-exempt charity, the organization may never have to pay taxes on the gift. If it is left to an heir, then there may be options to allow that heir to continue to enjoy tax-deferred growth of the account for decades to come.

However, there can be times when it makes sense to withdraw from both taxable and tax-advantaged accounts at the same time in order to optimize your tax situation. You also must start taking required minimum distributions (RMDs) from IRAs and other tax-deferred qualified plans starting at age 70-½ and need to adjust your withdrawal strategy to account for that.

Further Opportunities

Beyond investment management and retirement withdrawal considerations, you may have more complex needs and goals that your Wealth Advisor can help address. Investors who want the freedom to spend down their principal yet still leave money to heirs or charity, for example, may want to consider using life insurance as a vehicle for achieving both goals, Scofield says. When properly structured, a life insurance policy’s benefit can be held in an irrevocable life insurance trust (ILIT) outside the estate and be exempt from estate taxes.

Other types of trusts, including charitable trusts, grantor retained annuity trusts and living trusts, can also help with trying to couple retirement income planning with longer term estate-planning goals. Business owners, in particular, may need to figure out how to effectively protect their business assets when they pass them along to future generations. You may be particularly concerned about creating a sustainable income stream that will unquestionably last throughout your lifetime. One option is to get an annuity that guarantees income in return for a lump-sum investment. Many annuities offer the flexibility to also provide minimum payments. However, annuities also charge fees and may restrict your ability to access or pass down the annuitized assets. Depending on your goals, your Wealth Advisor can help you evaluate an annuity as an option or create an income plan that essentially annuitizes your wealth without one.

Another consideration is Social Security. Benefits may account for just a small portion of your total retirement income due to benefit caps. Your Wealth Advisor can help you and/or a spouse determine how to maximize your Social Security benefits by timing them wisely. “Social Security benefits may be useful insurance if you live much longer than expected, or your healthcare costs are much higher than you thought,” Scofield adds.

Fine-Tuning Your Plan

As you get older and progress further into retirement, you may have fewer viable options for designing an effective income plan. That’s why it’s so important to plan ahead. But there are always options for adjusting your investments when you’re already retired, Scofield says. “It all comes down to planning, diversification, and monitoring your retirement plan,” he says. “And that’s true both as you’re approaching retirement and when you’re progressing through it.”

graphic showing that developing a retirement plan is a critical step in securing your assets for the future Click to view wealth


graphic showing that developing a retirement plan is a critical step in securing your assets for the future

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This information is general in nature and is provided for educational purposes only. Regions makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented. Information provided and statements made by employees of Regions should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Regions encourages you to consult a professional for advice applicable to your specific situation.

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