Retirement Income Planning

What is a retirement income plan?

A retirement plan is an individual’s strategy for allocating a percentage of assets to lifetime income during retirement. Simply put, it’s to make sure you don’t run out of money during retirement.

What is financial planning?

The essence of financial planning is to decide how to maintain and grow wealth. Financial planners typically ask themselves, “where should my client put their money and what are the pros and cons to making that move?”

The topic of retirement planning can be a conversation piece; but so can debt elimination, taxes, and budgeting. Generally, a financial plan focuses on asset accumulation – not retirement income.

Why is the difference important?

It’s important to distinguish between your financial plan and your retirement plan. Oftentimes financial plans are sold as retirement plans and vice versa. A financial planner that focuses on wealth accumulation may not have the tools (or the licenses) to provide a retirement income.

And simply having a lot of money during retirement isn’t a sound retirement strategy at all. It’s important to have an income plan – but it’s also important to work with the right professional. Always keep in mind that any insurance professional offering retirement income strategies should not be marketing themselves as a financial planner. This is a seperate profession. In fact, many times it’s beneficial for the two professions to work together, as neither typically provide a fully wholistic product & service offering.

Multiple sources of income.

The ideal retirement plan is to have enough money to pay for food, housing, medical needs, and other living expenses. A person can set themselves up very well for retirement. Or they can rely solely on social security; which unfortunately some do. Sources of income can come from multiple places, and it can be strategic to have multiple income streams at once. Some of these income sources include social security, a pension plan, passive income from a business, dividend income from investments, lifetime annuity income, savings & investment drawdown, and cash value life insurance drawdown.

A bad strategy.

Many people save as much money as they can in their 401(k) plans and their IRA plans. This itself is not a bad idea. It can provide excellent tax deferral benefits. The bad part comes into play when it’s time to retire and drawdown assets. Drawdown methods can cause many people to outlive their retirement assets; especially as life expectancies improve. According to a 2014 study published by the Employee Benefit Research Institute, 75% of middle class baby boomers are projected to run out of money during retirement. This is a huge problem that can be easily avoided with the right planning tools.

What’s the best retirement strategy?

There isn’t one. In fact, it might even be a red flag if a financial professional recommends the same product mix/plan to every client they work with. Each strategy should be carefully constructed based on the individual. You should consider the following components when using an insurance professional to discuss retirement income planning:

  • Are they well versed in retirement income strategies, or do they just carry a license?
    • Any licensed insurance professional can bind a contract. You have to make the judgment call. Are they well organized and confident in their discussion points or do they sound unprepared or clueless?
  • Does their business model primarily consist of writing auto & home insurance?
    • If this is the case, it’s very likely that they have not given themselves enough time to educate themselves on retirement income strategies. Attaining & keeping auto & home insurance customers is very time consuming.
  • Did they initiate the conversation with a product?
    • Product pushers are not problem solvers. Basically, they hear a lot of buzz about a specific product, then they establish this product as the ultimate solution. When they market their services, they do it product-first. A good retirement planner knows there isn’t a one-size-fits-all product.

Annuities

Any financial professional who tells you that all you need is an annuity is probably not someone you want to work with for your retirement income plan. In fact, any financial professional that tells you to put over half of your assets into an annuity is not making a suitable recommendation. Annuities sometimes get a bad wrap. Why? Because of agents providing people with unsuitable recommendations, selling complex versions of annuities, and the high commission fees associated with those complex products. The good news is that in 2017, fixed annuity sales are higher than they ever have been. Why? Because they are easy to understand, they do what they say they will do, and they have the lowest commission fees of all annuity products – usually between 1%-4%.

Using a fixed annuity to create a lifetime income stream is essential. It does what other investments can’t – it makes sure at least a portion of your assets are giving you guaranteed income for life. It does this because it’s not an investment, it’s an insurance product. And if you’re worried about “losing all your money” like some financial advisors say can happen, all you need to do is add the cash refund guarantee. Again, annuities are not the ultimate solution, but they are a useful tool – and most educated financial advisors agree.

Life insurance.

Life insurance can be used as a retirement vehicle. And there are excellent reasons why. It offers tax deferred growth, immediate survivorship benefits, and FIFO drawdown (your after tax premium payments are withdrawn first) for most policies.

Another advantage life insurance provides is an “asset spending permission slip”. For example, if you have $500k in liquid retirement assets, you could purchase a life insurance policy equal to your assets and be able to use a portion of your retirement money for family & fun. Then use some of your assets to purchase an income annuity and you’ll have created yourself the retirement dream everyone pictures: lifelong income, inheritance, and family fun.

Twin Cities Mutual Independent Agency

We’re dedicated to helping you find the right retirement income strategy. We have relationships with several carriers because we know one single insurer can’t provide the best option every time.

  1. We are more knowledgeable about retirement income strategies than other insurance professionals.
  2. We do not product push. Instead, we take time to understand your unique goals.
  3. We provide more resources. Our goal is to help you stay informed and be in “the know” about strategies and practical solutions.

To schedule an in-person meeting please visit our scheduling page.