Your Roadmap to Success: A Comprehensive Written Retirement Income Plan
The Number One Thing You Can Do to Gain More Retirement Security
In our book, Momma’s Secret Recipe for Retirement Success, we share our “7 Rules To Live By For Retirement Security.” Today, we want to focus on one of them: The importance of having a comprehensive written retirement income plan.
A comprehensive written retirement income plan should include:
- Retirement income projection: income analysis + risk analysis + fee analysis
- Income tax analysis
- Beneficiary asset transfer analysis
- Full plan details
If your plans for retirement were based on this concept, how would you feel? Probably a lot more secure. In our experience, working with retirees and pre-retirees, less than five out of every 1,000 people have an actual written document that lays out their entire retirement income plan as highlighted above. Chances are extremely high that you don’t have a written plan. At the same time, studies show the number one thing retirees want in planning for their retirement years is to have an actual written plan. And still, they don’t get one.
Case Study: Bob and Carol
Let’s examine a hypothetical case study to give you an overview of how the comprehensive planning process works:
Bob and Carol are both 65 years old. They worked hard and saved their money for over 40 years. They’d done a great job accumulating retirement assets of $1,600,000 not including their home. They were great savers, didn’t overspend, and had $0 in consumer debt. They’ve been retired for two years already and receive $78,000 in total pension and Social Security income. The $78,000 of annual income is enough to pay for all of their monthly costs and bills but didn’t leave them extra money for traveling. They had a broker for 22 years and he always told them the best planning strategy was to defer their income distributions until age 70 1⁄2 so they wouldn’t get killed with income taxes.
So how can they travel more if they don’t have more income? They want to travel a lot, and they want to do it now. They are only 65 and in great health, so they feel there is no time like the present, and they shouldn’t waste another moment. Bob has recently had a best friend his same age pass away from a massive heart attack and Carol’s best friend has been battling cancer for several years. Bob and Carol fully understand they can’t take their good health and their ability to travel for granted because they feel if they don’t do it now, they might not get the chance to do it in the future.
SEE ALSO: What is a ‘Safe’ Income Withdrawal Rate?
They are very worried about how high the stock market is and how the next stock market crash could be around the corner because they lost -50% between 2000 through 2002 and lost another -50% between 2007 through 2009 and don’t want to go through those recurring nightmares again. They are very afraid of running out of money because their broker has told them they need to grow their assets as much as possible to make sure they will have enough money. Then, on the other hand, the broker says if the market drops, they will need to “ride the market out” again, and they really don’t like the sound of that, because if they have to “ride the market out again” they will need to decrease or terminate their income distributions and their money will most likely run out sooner rather than later. And they won’t be able to travel. Their broker and CPA have both told them taking additional income distributions will significantly increase their income taxes.
They became such great savers while they were working, that they have been afraid to use their assets for income now that they are retired. Now retired, they have not taken out any income, and this is a common trait we see in retirees who have been good at saving money. They simply have not learned how to spend it, in most cases because they are afraid of suffering big losses, their money running out during their lifetime, and that they will pay too much in income taxes for using their money.
The other common trait we see all the time with people like Bob and Carol is that they do not realize they have achieved success. Not just a little success, but they have achieved success at the highest possible level that will allow them to have the retirement of their dreams, without having to worry about big stock market losses and without ever having to worry about their money running out for as long as they live. They have no idea they have succeeded because no one has:
- Told them they have already accumulated enough assets to actually attain their financial goals.
- Told them they must transition from asset accumulation to asset preservation and income distribution.
- Built a plan for them to reduce their risk and maximize their income.
- Put their entire plan in writing.
- Created a customized income plan stating they won’t run out of money for as long as they live.
Most People are Just Like Bob and Carol
The clients we meet with every day are often just like Bob and Carol in at least one major way (and maybe you are, too). If they just had a plan, a detailed written plan, they could begin to live out their retirement dreams starting today! And just like you, they don’t have that plan.
We asked Bob and Carol why they saved the money in the first place while they were working? They replied they saved the money so they could use their assets during retirement to create income that would last for as long as they lived, so they could enjoy their retirement as much as possible. Carol answered, “So they could travel the globe.” To do this, Bob and Carol have to convert or transition from a “saver” while they were working with a “money-hoarders” mentality to being a “spender” now retired with an “I-deserve-the-best-retirement” mentality.
SEE ALSO: Adjusting to Retirement: 8 Helpful Tips
Going from a saver to a spender is far harder to do than you would think. It is very, very difficult for many retirees to spend the money they have saved for so many years. Especially for those that have always focused on save, save, save, save! Do without, do without, do without! Sacrifice, sacrifice, sacrifice! Hoard the money, hoard the money, hoard the money! Now it seems so strange, it almost seems like they’re bad, doing something wrong, to even think about actually spending their money. We know the hesitation to use their assets comes from their fears. But what if Bob and Carol could have a retirement income plan that reduced their risk of large stock market losses and guaranteed they would never run out of income for as long as they both lived, and kept them in a low-income tax rate on all their income? Do you think they would be willing to use their assets for income? You bet!
We met with Bob and Carol five times to build their plan. We asked them about how much risk they really wanted to take, and they replied they would like to keep their risk level between -5% to a maximum of -10%, meaning they don’t want to lose more than -5% up to a maximum of -10% of their assets. We asked them how much income they would like to be able to take out of their assets and they replied, “as much as possible as long as it will never run out for as long as they lived, and as long as they won’t be in too high of an income tax bracket.” We asked them if it was important for them to leave money to their beneficiaries and they replied, “Our number one goal is to make sure we have enough money for as long as we live, and then we’d like everything left to be passed on to our children.”
By completing a portfolio analysis and reallocating some assets, we reduced the projected overall risk of their portfolio significantly. We reduced their loss risk and their recovery gain, and the most exciting part of the plan was that we increased the annual income from their assets, too!
Although we’ve been talking about a hypothetical scenario, this is a typical type of plan we implement on a daily basis for our clients. This type of planning is focused on transitioning your portfolio from Stage One of Retirement Planning – Asset Accumulation, to Stage Two of Retirement Planning – Income Distribution and Asset Preservation. (Read more about the two stages here.) And Bob and Carol received an opportunity to receive tremendous potential benefits:
- More control of their assets.
- A greater understanding of their money.
- Fees significantly reduced.
- Risk of loss reduced.
- Risk of recovery gain reduced.
- Annual income from their assets increased, with a majority guaranteed for as long as they both live.
- No longer worried about their money.
Would you like to enjoy these benefits, too? At Peak Financial Freedom Group, we believe it’s important to feel in control of your financial future. Contact us today to schedule an initial conversation so that we can determine the next steps in helping you get the comprehensive written retirement income plan you deserve
