Greetings! I hope this finds you well and enjoying life!
An important part of retirement planning is income planning. Having a structured process and system that consistently and reliability generates cash flow for day to day needs is imperative and one of the fundamental keys to successful finances in retirement. The American Colleges’ Retirement Income Certified Professional curriculum recommends three forms of income planning. They are systematic withdrawals, bucket approach and creating an income floor. Each make sense in certain applications and can be useful exclusively or in some combination.
With systematic withdrawals you determine an acceptable withdrawal rate, inflate it and systematically make withdrawals from a diversified portfolio. Question is what’s an acceptable withdrawal rate that will sustain withdrawals in up and down economic markets? A lot has been written about this topic but current consensus is two to three percent of portfolio value withdrawn annually and inflated, to provide increasing payments to keep abreast of inflation.
In utilizing a bucket approach you segment retirement expenses to buckets that match an asset class and certain balance to provide for the expense. In doing so you would maintain income and growth investments, short and long term assigned and designated to certain needs or expenses.
In creating an income floor one would utilize a guaranteed source of income such as an annuity to provide a systematic reliable minimum source of cash flow to meet certain expenses. In essence a check comes in the mail from an insurance company on a given day of the month to meet the needs for that period of time. This would be similar to receiving a pension distribution each month.
All three forms of providing income are credible and useful in certain applications. If you have questions or feel that we can help you in any way with retirement finances or retirement planning, don’t hesitate to contact us.
Jeff Christian CFP, CRPC