Securing Your Income During Retirement

  • How does planning in retirement differ from planning for retirement?
  • What steps should you take to help keep your retirement income secure?

Retirement brings different questions

Retirement as we’ve known it is changing. You’ll probably be more active, live and work longer, and need to rely more on what you’ve saved for income than previous generations.

While most people understand the importance of saving money for retirement, the concept of income generation in retirement is less familiar. A retirement income plan involves transitioning from saving for retirement to using your hard-earned savings to generate some or all of your income.

But how do you get started on creating your retirement income plan? Below are answers to some frequently asked questions about developing a retirement income plan.

Keep in mind the issues involved are often complex and your plan should be unique to you and your individual needs and goals.

What challenges should I consider?

It’s important to have a plan to help manage potential challenges to your retirement security.

  • Market volatility: Market volatility will always be a concern. A severe market downturn just before retirement or at the start of your retirement could have a significant effect on your ability to generate adequate income throughout many years of retirement.
  • Withdrawing too much from your savings: A key to a solid retirement income plan is determining an appropriate withdrawal rate from your savings. Just as important is having ways to reduce your spending at times of market volatility or when unexpected expenses occur.
  • Inflation: The longer your time in retirement, the greater the potential inflation may erode the purchasing power of your savings and effect your lifestyle. A good retirement portfolio should balance the need for ongoing income with savings that have the potential to grow and last through the years.
  • Health care and other unexpected expenses: Be aware of the variety of expenses—including health care—you may face. Your plan should allow spending flexibility to be prepared for these expenses.
  • Longevity: Ensuring your assets last throughout retirement requires careful planning. Consider how the other challenges may affect your income over time. We can help you develop a retirement income plan that helps protect against the risks to your retirement savings.

How much will I spend in retirement?

A truly realistic approach to retirement planning doesn’t just allow for changes in your personal and financial circumstances—it takes them as given. That’s why it’s important to estimate your expenses in retirement.

Understand your essential and discretionary expenses and how they may evolve throughout your retirement years.

  • Essential expenses are basic, ongoing expenses like food, mortgage or rent payments, transportation, insurance premiums, taxes, basic health care costs, and other nondiscretionary living expenses.
  • Discretionary expenses include entertainment, travel, recreation, charitable giving, and luxury purchases. Because these expenses are nonessential, you can potentially lower or postpone them if your financial situation or needs change.
Use our retirement worksheet (PDF) to help plan your retirement expenses.

Where will my income come from?

Retirement income often comes from a variety of sources. Yours may include:

  • Retirement savings, including 401(k), 403(b) and 457 plans
  • Nonretirement savings, including brokerage accounts or savings accounts
  • Social Security
  • Traditional pension plans (defined benefit plans)
  • Annuities
  • Employment (full- or part-time)
  • Rental property you own
How you receive income from these sources can affect your tax situation from year to year. Your strategy can also influence how long your savings can continue to meet your income need.

Once you’ve estimated your expenses and income in retirement, see if there’s a gap between the two totals. If you don’t have enough money for your ideal retirement, consider modifying your retirement goals. We may also be able to reallocate your portfolio to generate more income, keeping in mind your time horizon and risk tolerance.

How can I help ensure I don’t outlive my savings?

To help protect against the risk of outliving your retirement savings, ensure that your essential expenses are covered by sources such as:

  • Social Security
  • Pensions
  • Annuity payments
  • Insurance benefits
By providing a fixed payment amount, these sources may help protect you from market volatility and lower your risk of outliving your money.

Our Personal Approach Helps Us Better Understand Your Unique Financial Needs & Goals

Next Step - The Retirement Income Planning Process

Financial articles and topic discussions you find on the internet can give you some great general guidelines and ideas. However, each and every person out there has very different financial needs and lifestyle choices they make that can impact their current and future financial health.

Our practice is built on the foundation of taking the time to fully understand each of our clients individual financial goals and then tailoring a plan and portfolio to address those objectives.

Begin with a plan

Retirement is typically a time that brings major changes to your lifestyle and finances. You no longer depend on a paycheck from work. You shift to other income sources such as savings, investments, pensions, and Social Security. As you transition into retirement, it’s critical to ensure your income can support you for years to come.

This time requires a plan to effectively manage retirement challenges. The Envision planning process is the foundation for developing your retirement income plan. It can help you make informed choices and find strategies to address the following questions:

  • When/how can I retire with confidence?
  • What can I do to help make my money last through retirement?
  • How do I plan for and respond to unexpected events?

The Envision planning and discovery process*

A first step in developing a comprehensive retirement income plan is a “discovery” session. During this discussion we will gain a thorough understanding of your overall financial situation and what type of lifestyle you want during your retirement years.

It’s important to spend some time thinking about this. How you plan to spend your time will drive budget and spending decisions.

Analyzing income sources

While analyzing your expenses, we will help evaluate your income sources. This starts with creating an inventory of all current and potential sources.

Once we have identified your sources of income, we will analyze your income and expense information. Modeling tools within the Envision process help determine the likelihood your projected income will meet your desired spending levels.

The Envision technology will assign a probability of success score. The higher the score, the more likely you are to be able to spend according to your estimates and not outlive your assets. If there is a gap, we can suggest changes to your portfolio or goals.

Modify your investment strategy

In addition to adapting your spending, another way to help make up for an income gap is to modify your investment allocation. If your investment mix is too conservative — with an over allocation to fixed income investments, for example — your assets may miss out on growth opportunities and not keep pace with inflation and spending. On the other hand, too aggressive an approach with a heavy weighting in stocks can result in excess volatility.

An important first step before making any portfolio adjustments is to understand your risk/reward tolerance. With that in mind, we will use Envision tools to analyze ways in which your portfolio could be adjusted to help close any projected gaps. The goal is to balance your need for income in the short-term while seeking to preserve your principal to continue to generate income for the longer term.

Planning your withdrawal strategies

As discussed above, your income in retirement could come from several sources that might include:

  • Taxable (brokerage and savings)
  • Tax-deferred 401(k)
  • Traditional IRA accounts
  • Tax-exempt (Roth IRA) accounts
  • Annuities
Planning from which accounts to take withdrawals and when to do so can be complex.

We will use Envision tools to evaluate your investments and recommend withdrawal strategies. These strategies will consider short-term income needs, manage tax implications and maintain your portfolio allocation to be consistent with your long-term objectives.

Monitoring and adapting

Even with a comprehensive retirement income plan, markets can be unpredictable and life events can affect your spending. That’s why it’s important to monitor your portfolio and withdrawals.

We will meet with you to review portfolio performance, your spending history, and your budget and to discuss future spending plans. You’ll also talk about any changes that might require adjustments to your investments or spending.

The retirement income planning process is not a “one and done” event. It can be viewed as a circular process. The initial plan will be set based on your situation at that point in time. Over time, we will work with you and make modifications to your investments and help you make informed decisions about your spending. Together will will use Envision tools and resources to help ensure your assets will last so you can live the retirement that you’ve imagined.

You Have Questions

  • How will the Envision Planning Process help me?
    Watch the short video to learn more.
  • How much does the Envision Planning Process cost?
    There is no cost or obligation for the Envision Planning Process.
  • What is my next step?
    If you feel that you could benefit from the Envision Planning Process, simply fill out the form below and we will contact you to answer any specific questions you may have.
*Based on accepted statistical methods, the Envision tool uses a simulation model to test your Ideal, Acceptable and Recommended Investment Plans. The simulation model uses assumptions about inflation, financial market returns and the relationships among these variables. These assumptions were derived from analysis of historical data. Using Monte Carlo simulation, the Envision tool simulates 1,000 different potential outcomes over a lifetime of investing varying historical risk, return, and correlation amongst the assets. Some of these scenarios will assume strong financial market returns, similar to the best periods of history for investors. Others will be similar to the worst periods in investing history. Most scenarios will fall somewhere in between. Elements of the Envision presentations and simulation results are under license from Wealthcare Capital Management LLC. © 2003-2018 Wealthcare Capital Management LLC. All Rights Reserved. Wealthcare Capital Management LLC is a separate entity and is not directly affiliated with Wells Fargo Advisors.