Income Planning Mistakes

Kevin Wray Academy, Finance 101, Income Planning, Income Planning, Insight Investing Articles, Investing & Planning, Retirement

Don’t plan to be retired for years. Plan to be retired for decades. Either way, PLAN

Today’s thinking is that there is a good chance you could be retired for 30 or more years!  Consider that statement for a moment and understand that this means you could be retired more years than you spent working.

I have heard too many people say things like “My parents died young, so I probably will too” or “I’ll most likely end up working for as long as I’m alive.”  My response to them is, “Perhaps you will; but what if you do not, or do not have to?”

In our office we will create a personal retirement plan for you.  This plan will show you needing income until you turn age 95!  We do not assume you will die young, neither should you.  We want you to be over-prepared rather than under-prepared. Planning for your retirement is your responsibility and nobody else’s.  If you don’t take the first steps in preparing for your retirement, then you may not like the outcome.  Whether you know it or not ‘Procrastination’ is a plan.  The problem with the ‘Procrastination Plan’ is that it rarely works in your favor.

I suggest you stop procrastinating and indulge yourself with an appointment with your adviser to get the planning process started.

Are you now asking yourself “how do I know if I am with the right adviser?”  To know if you are indeed with the right adviser, there are two questions that he or she should be able to answer

  1. Do your solutions solve my problems?
  2. Is your advice in my best interest?

If the answer is yes for both questions, then I think you are in a good position to do some true financial planning.

Don’t start Social Security too early

Do you want to know exactly when to start claiming your benefits?  I could give you the precise day to start assuming you can first tell me when you are going to die.

In all seriousness, many people just do not understand their options before claiming Social Security benefits. Assuming you have worked and paid into the system, the first step in deciding when to begin taking benefits is to get your estimated payment numbers.  You need to have computer access and log into the website www.ssa.gov.  Be clear that NO planning can be done without the numbers on your Social Security estimate report. It all starts there.

Be sure you get the facts first as it is not a reversible decision; don’t cost yourself tens of thousands of dollars over the course of your life by making a hasty decision.

There are a variety of planning tools which can help you decide when to start drawing benefits.  You could google ‘Social Security planning’ and wade through thousands of hits OR you could come to us and get a Simplicitree® plan based on your own personal situation.

Our Simplicitree® plan will help you make the hard decisions when it comes to retirement planning. We can provide a visual example of how taking your benefits at several different points in time (your age) will affect your retirement plan. This could dramatically help you make sense of when you should begin based on your personal financial situation.

Maybe in your situation it might be better to start spending other assets and let your Social Security grow. Or perhaps you should begin taking your benefits on the first day they are available to you.  You will not know the answer until you sit down with an adviser and start YOUR retirement plan.

Don’t assume that bonds will provide your main source of retirement income

Many people only think of bonds (and no other options) when it comes to income-generating investments to have in retirement.  Bonds are one option, but there are dividend-paying stocks, annuities, and even alternatives like REITs that are available.  Be sure that you understand the pros and cons of each of your options so that you can find the best fit for you.

Don’t ignore inflation

Let’s say you have determined that you need $5000 per month to live on during retirement and that you have established a few income streams which will create that much income for you.  Well that sounds great, but what are you going to do in 20 years when it costs you $9000 per month to maintain that same lifestyle because of inflation?  Your plan should account for inflation.

Don’t forget to create lifetime income streams other than just Social Security

The biggest fear most retirees have is the prospect of running out of money. Be sure that you have a plan in place that will provide several income streams for you (and your spouse).  Lifetime income streams can protect a widowed spouse in a difficult financial position after the death of the first.

If you have any questions, please reach out to us and we will be happy to sit down with you and start the planning process.