Retirement Plan vs. Retirement Income Plan

One of the questions I am asked the most lately is “what is the difference between a retirement plan and a retirement income plan?”

In my practice, I define “retirement plan” as a strategy to accumulate the wealth needed to retire at a certain age, with a defined income goal.  I work with people to identify their projected budget at retirement, how much they need to start saving today, where they should be saving those dollars and then recommend the investments vehicles that could work with those saved dollars.

Often times, the dollars don’t match their goals.  By that I mean, they have lofty ambitions and either don’t have the money they will need to set aside each month to realistically achieve that goal or they have the money but they don’t want to stop spending today to free up that money for saving and investing.  So we work through more realistic scenarios to find a happy medium.  Once a plan of action is decided on, then we work through where and how to invest the savable dollars they are willing to commit to their retirement plan.  For this work I charge a fee of $600.

When someone is close to or at retirement, then we start talking retirement income plan.  I define “retirement income plan” as a strategy to turn one’s lifetime of savings into income that is meant to last their lifetime.  In fact, I wrote a guide with virtually the same title – see the right margin of this site for how to get a FREE, no obligation, electronic copy of that guide.  So now we are using a different set of tools and strategies to not just focus on growing ones assets, but preserving them and making sure one doesn’t run out of money.  This requires a specialized skill set which I have studied and honed for over 20 years.

After spending about 25 minutes or so with someone on the phone, we can usually determine if a retirement income plan is a good fit at that time.  If it is, I get started crunching numbers to see what they can realistically spend in retirement.  Determine if there are any income gaps.  Educate them on strategies to increase their retirement readiness.  Work to find out which Social Security claiming strategy would be a good fit for them.  Provide advice if retirement is not in the cards at their desired stage based on their goals and spending habits.  That entails solving for how much more they need to save, how much longer they may need to work or show them how much they can afford to spend from their assets and let them decide if they can make it work if they truly want to retire right away.  For this work I charge a fee of $600.

I wish I could say that every person that comes to me is ready to retire right away and start enjoying their Golden Years.  Thankfully, many come in before they quit their job or make other irrevocable decisions with things like a pension plan.  Sadly, some come in after they are done working and ask how I can make a small sum of money provide a large income and do it for 30 years.

There are many other things that go into setting up a retirement income plan – such as cash flow, debt management, how the estate should be handled should they pass away, how will very large bills like assisted living, in-home or nursing home care be handled, etc. But in summary, I break the retirement income plan into 3 parts. An income plan, a tax plan* and an investment plan.

So there you have it.  Hopefully now you know the difference between a retirement plan and a retirement income plan – at least as how I define them.

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. Bank certificate of deposits are insured by an agency of the Federal government and offer a fixed rate of return whereas both the principal and yield of investment securities will fluctuate with changes in market conditions.

Separate from the financial plan and our role as financial planner, we may recommend the purchase of specific investment or insurance products or accounts.  These product recommendations are not part of the financial plan and you are under no obligation to follow them. 4673223/DOFU 5-2022

The 3 Keys to Successful Retirement Preparation

The very first question you need to ask yourself when you decide to retire is, “What will it cost to continue to live the lifestyle I am accustomed to and WANT for the rest of my life?”  That may seem like a difficult question to answer, and it can be if you don’t go about it the right way.

The very first step to answering that question is to lay out your current expenses, including your household budget and any other basic, daily living expenses you have.  Once you have determined your household budget and other daily living expenses, the next important question should be…

“Where is the income going to come from?”

In order to retire safely and stay retired, I believe every retiree needs to consider the following 3 things:

  1. A Source of Income to Cover Expenses

This may seem obvious but you would be surprised at how many families I have worked with who didn’t account for the loss of some social security benefit after one person in the couple passes away.  Or, the reduction in pension income if the person who the pension is tied to passes away.  You will benefit greatly from a financial strategy that aims to create an income stream that you will not outlive no matter what, and one that can support your needs in retirement.  This will take care of the basic expenses that you will encounter in retirement (i.e. house payments, utilities, insurance, etc.)

  1. An Emergency Fund

You will need to determine the right amount of capital needed to account for any unforeseeable emergencies in your future.  The purpose of this surplus money is to be used in the event of an emergency such as medical expenses, natural disaster, car or appliance repairs, etc.

  1. A Strategy for Inflation

This may be the hardest part to prepare for, because inflation happens every single day…and we never know how much it will be year to year.  This can make it difficult to determine the exact amount needed to prepare.  However, this money is set aside to compensate for inflation over the period of your retirement.  It can be beneficial to break down your basic expenses and account for each one that will be affected by inflation.

Once you have identified these things, then comes the next step of putting a strategy together to accomplish everything.  Resources on that topic are throughout this website and also in my book, How to Turn a Lifetime of Savings into Income for Life which you can requested on the right hand side of this site.

As always, if you feel I can be of help on your journey please email or book a 25 minute phone session with me – a link to my online calendar/scheduler is also on the right hand side of this page.  I will do my absolute best to help and if I can’t, I will try and point you in the right direction.

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