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.

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. 2486607/DOFU 08-2019

When To Start Your Social Security Benefits Is Not An Easy Decision

We have had the privilege to help many retired people live out their retirement with a sense of pride and independence. The one concern we very rarely see is that they have accumulated too much money in retirement accounts to completely remove anxiety and nervousness from their life. Social Security can play a big role for most retirees and is often times overlooked. There are many different ways to receive your social security payment and for the most part people either receive payments as early as possible or wait until full retirement age. In this article, we will share a case study from a real life client and how they were able to help maximize their social security benefits. Social Security isn’t a “no brainer” like society tends to suggest. Please understand this should not be considered as a recommendation to pursue a particular financial strategy or purchase a particular product, your situation will be materially different and you should consult your financial, legal and tax advisors regarding your particular situation. Instead, this case study is simply here to help educate you on what we see as a common view of social security and the potential benefits should you review your comprehensive financial situation.

In this particular situation, the husband and wife were middle class income earners and they were very good about living within their means. They saved ample dollars for retirement and were rewarded greatly in their retirement, as financial stress was minimal in their home. The husband retired at 62 and thought his best option was to take his social security payment as earlier as possible. His wife worked until age 62 as well but she planned to take her social security payment at age 70. They had sufficient savings to bridge their financial needs until age 70, so delaying her payment was not an issue. They had about 2 ½ years between their ages and had longevity in their family. Both had parents live into their late eighties to their mid-nineties.

Our conversation started with “how did you decide when to receive your social security payment?” With an “I didn’t give it much thought” kind of look in return, we discussed the various ways to receive their payments. With a quick review of the wife’s social security statement and the husband’s payment information (remember, he’s already receiving his payment), we ran a social security timing report. The purpose of the report is to help aggregate both pools together and aim to maximize the amount of money they receive over their lifetime.

What this report detailed was the following:
The husband, though he has already elected his benefit, should consider suspending his benefits at age 66. Eventually, he could resume his benefits once he turns 70. His benefit amount would increase by 8% each year. This is under current social security rules.
The wife should consider applying for spousal benefits once she turns 66. This would be roughly half of the husband’s benefit amount at his full retirement age. She continues to receive this payment until she reaches age 70. At age 70, she applies for her full benefit amount (which has grown by 8% per year since her full retirement age) and the payment she was receiving from her husband stops. The strategy compared to the “both of them receive payments at age 62” could generate over $250,000 more during their retirement assuming they live to age 95. Even if they lived to 85, the additional amount they received was nearly $100,000

This is one of the many stories we could share about working towards maximizing your social security payments; unfortunately, many retirees overlook this one important decision. If you have not already reviewed this piece of your retirement strategy, please contact us to see how much money you may be leaving on the table.

Written by David A. Nordmeier, CFP®,CFS.

This is an example for illustrative purposes only. It is not indicative of any particular investment or guarantee of future performance.
Financial Advisors do not provide tax or legal advice and this should not be considered as such. Please consult a tax or legal professional for advice regarding your specific situation.
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