Income Planning

Income planning is a subset of retirement planning that focuses on providing desired income streams during retirement. We want to give you the confidence to relax and enjoy life, knowing where your money will come from each month of your life, even if:

  • The market crashes.
  • Taxes rise.
  • Your bonds lose value.

Here is why traditional strategies fail

Many investors follow accumulation strategies to the grave. They try to solve everything with growth. This is an attempt to outpace your withdrawal rate.

While most would agree that the market is generally up over long periods of time, these growth-only plans are unlikely to overcome the downs that you’re bound to have once retired.

Once in withdrawal, down markets, even if short in duration, can devastate your portfolio. A common assumption is that if you average 10% returns, you can spend 4%.

Unfortunately, sequence of returns risk leaves this strategy with a high probability of failure. Continuing to follow an accumulation or growth plan may work out well for you, but depending on what the market does in the future, it could leave you penniless.

Instead, if you shift gears to a retirement plan or a de-accumulation plan, you may secure predictable lifetime pension-like income, market-beating growth, and tax-reduction strategies that result in more comfort and confidence in your lifestyle, as well as wealth to spend and pass on.

Other investors focus on high dividend-paying preferred stocks and bonds for income. Research tells us this approach is also inferior to other approaches because:

  1. Preferred stocks and bonds are at risk to market conditions, as the price of stocks and bonds can fall and dividends can be reduced or eliminated.
  2. The outcome is totally at risk to economic and market conditions that are beyond the control of the investor.

Most rational investors want a plan that is going to work no matter what, not a plan that has a 50/50 chance of success. That’s why a retirement plan is so important. Retirement is not about maximizing your growth. It’s about prioritizing your needs.

First, we want to ensure you have the lifetime income you want. Then, we can grow your reserves as much as possible. To be successful, you must avoid sequence of returns risk, either by good luck or a good plan.

What is “sequence of returns risk,” and why is it so dangerous?

Current research by Morningstar shows that in today’s market, a 50/50 stock/bond portfolio has a 90% chance of lasting 30 years if 2.8% is withdrawn each year.1

A 4% withdrawal rate gives you a 50/50 chance your money will last 30 years. Even a 10% average return doesn’t protect you from sequence of returns risk.

Once you retire and begin withdrawing assets from your accounts, a few bad years early in retirement, along with your withdrawal, can reduce your account value so severely that you can’t earn enough to recover.

However, if you avoid locking in losses, you can withdraw 5%, 6%, 7%, or even 8% per year from your portfolio and preserve it for a lifetime. How do you do this (see Advanced Strategies)?

1Study by Morningstar, Low Bond Yields & Safe Portfolio Withdrawal Rates

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