By now, most people know they should have a financial plan, even though many do not. But what about an income distribution plan? For decades, the benefits of financial plans have been discussed but only for the last few years have we begun to hear about income plans. The reason for the recent discussion is due to our aging population. According to a 2017 AARP study, 10,000 baby boomers are turning 65 every day, and this is expected to continue into the 2030s!
Investors have been taught well how to save and invest for their retirements, but they havent had nearly enough education on how to spend what they have taken most of their lives to accumulate.
Spending down your assets is one of the biggest issues facing retirees today. To be honest, saving for retirement isnt all that hard. By buying a well-diversified, low-cost, mostly equity portfolio, the market is going to do most of the work. Where the real challenge lies is in unsaving or spending down these same assets in retirement. But how do we go about doing that? You have to be aware of things like income and capital gains taxes and their effects on your returns as well as on your spendable income. As the old saying goes, its not what you earn, its what you take home. What about the make-up of your portfolio? Become more conservative is an all too familiar mantra of advisors. But what does that mean? Does it mean having fewer equities? More bonds? What risk are investors avoiding, and more importantly, what risk is it creating for them? In particular, longevity risk the risk of outliving your savings!
In a traditional portfolio, retiring at the wrong time, which can impact sequence of return risk, can have a disastrous effect on whether or not you have enough money to maintain your standard of living in retirement. Losing money in the first few years of retirement, combined with retirees tending to living longer, or longevity risk, can create a perfect storm for those nearing or in retirement. You must have a plan to mitigate that risk.
By having a formal income distribution plan in place, retirees can address the primary issues surrounding them today such as:
1. What assets to spend in which order
2. Integrating Social Security claiming strategies into an income plan
3. Risk control in a portfolio, including longevity, sequence of return and volatility
4. Low interest rates
5. Taxes
Having a formal income distribution plan in place can potentially help retirees have a more enjoyable retirement.
T. Eric Reich, CIMA, CFP, CLU, ChFC is president and founder of Reich Asset Management and can be reached at 609-486-5073 or eric@reichassetmanagement.com.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.
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Learn the importance of having an income distribution plan - Press of Atlantic City
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