Income Planning
Income Planning and Your Financial Future
Today’s retirees are redefining retirement. They’re living longer. They are extremely active. They want to learn things during their golden years: take on new challenges, start businesses, enjoy family time, and travel the world. What are your dreams for retirement? Do you want to take on a new hobby? Spend time spoiling your grandkids? No matter your vision, one thing above all else can make your dreams come true: income. Without income, there is no retirement.
Transitioning to retirement requires a fundamental shift in how you think about money and your investments. Being successful in retirement means having a plan. Our team at SHP Financial creates and manages a customized SHP Retirement Road Map® for you with your best interests as our beacon. Our five-part planning process begins with an income plan.
What is IncomePlanning?
Some of the most rewarding experiences in life happen in retirement, but technically, it’s a time of unemployment. This “distribution phase,” when you draw down savings and distribute wealth to supplement a reduced income stream, can last 25 to 30 years. You should have a cash flow plan. How much you need depends on the lifestyle you want to live and the ratio of income to expenses. There is no magic number, and everyone’s circumstance is different. At SHP Financial, we specialize in helping clients prepare for and navigate the distribution phase once they retire or are within ten years of it.
The Importance ofIncome Planning
Retirement is not the time to gamble. Income-producing assets must factor into a retirement plan to cover the expenses that do not stop when work does. With pensions becoming a thing of the past, Social Security is the sole income source for more and more people beyond savings and investments. Those who don’t have an income plan put their retirement dreams at risk. Waiting too long to consult a financial advisor could result in an unbalanced, undiversified portfolio that will not grow as much as it could. Read on to learn more about the advantages of diligent income planning.
Five Benefits of a Comprehensive Income Plan
Income planning is essential for your future well-being and a relaxed retirement. At SHP Financial, our team can develop a personalized income strategy designed to support you throughout your lifetime. Here are five key benefits:
Financial Security
An income plan helps ensure that you can handle both expected and unexpected financial demands in retirement. The goal is that you will not run out of money, even in uncertain times or market fluctuations. With a stable income to cover basic expenses, you can relax and allow your investments to grow.
Debt Management
Retirement is no time to carry debt. Emergencies do come up, and when they do, a sound income plan means you won’t have to rely on credit cards or loans to cover the cost.
Future Preparedness
Income planning isn’t just for retirement. It’s part of a holistic financial plan for life. Early saving, planning, and allocating funds to different asset buckets can help with major life events like purchasing a home, starting a business, family planning, paying for college, and retirement. It also safeguards against job loss, medical issues, and other unforeseen circumstances.
Investment Growth
Investing in dividend-paying stocks and interest-yielding bonds can create income that maximizes returns and minimizes risk. In this way, an income plan promotes an increase in wealth through a stronger allocation of resources.
Retirement Readiness
Retirement is life’s big finale. An income plan prepares you to move from the accumulation phase of working and earning money to the distribution phase. It informs you about your savings needs, where to invest your money, and how to manage your assets.
Creating Your Income Plan
An income plan involves the strategic management of income streams. It considers your current holdings, predicted future income, and estimated expenses to help achieve a financial balance that will carry you through retirement. An income plan consists of four parts:
Social Security Maximization
When constructing a retirement income plan, taking advantage of every income source is imperative. It starts with Social Security, a benefit that, at least for now, is guaranteed by the federal government. A worker’s earnings dictate the total benefit amount, and there are ways to optimize the monthly payments. In short, the longer you wait, the better for maximum payment and growth. However, choosing when to collect is personal and has many influences.
01. Health
If you are within a stone’s throw of retirement, you can probably foresee whether you should take benefits early based on your current health status, but medical history should also factor into that decision.
02. Break-Even Age
This factor concerns longevity when the cumulative value of taking benefits later surpasses the cumulative value of taking them early. For example, if you want to apply for benefits at 62, you should assess your chances of living until the break-even age of 77.
03. Social Security Withholding Rule
The Social Security Administration will withhold a portion of benefits from those who collect before full retirement age and report more than the SSA’s earned income limit per year. The Internal Revenue Service (IRS) taxes earnings, including Social Security benefits above a certain threshold. This presents a good reason to delay Social Security benefits.
04. Spouse’s Social Security Benefits
When one spouse passes away, the surviving spouse does not receive two separate Social Security payments. Instead, the lower of the two spousal payments disappears. The surviving spouse will collect the higher Social Security payment. A financial advisor might recommend an income strategy for married couples to maximize the benefits in life and after death.
The decision of when to take Social Security happens once. A financial advisor can help you get the most from your benefits. Using sophisticated planning software, we present clients with scenarios to help them make informed decisions about their Social Security benefits.
Income andExpense Analysis
As part of your income planning, a qualified financial advisor can help you forecast your retirement expenses and create a monthly budget.After-tax income will fund your retirement lifestyle choices, and a percentage of your assets may go to the IRS and Uncle Sam. If your monthly retirement income isn’t enough to cover the estimated expenses, the result is called an income gap. Several financial planning strategies can bridge that gap.SHP Retirement Road Map® we simplify the living expense calculation and tracking process and provide options for generating additional income.
Ask yourself the following when planning:
Q. What do you want your lifestyle to be like?
Q. Where will you live?
Q. How much will you pay for household expenses?
Q. Will you want to travel?
Q. Will you spend money on grandkids?
Q. How much will health care cost?
Inflation Strategy
Recent history has shown that inflation happens, and it can rise with a vengeance. However, inflation is normal and part of the financial planning process. The cost of living, goods, and services increases over time. An income plan determines how much money you need and adjusts for inflation, whether it’s the 3.9% long-term average or if a political, economic, or catastrophic event has influenced a larger spike. Healthcare costs have been rising faster than the general inflation rate, so a retirement plan should correct for that as well. Inflation can greatly impact your retirement nest egg and long-term quality of life. Our SHP Retirement Road Map© system accounts and adjusts for these fluctuations over time, shielding clients from instabilities and inflation in their income plan.
Spousal Plan
It isn’t easy to think about a spouse’s death, but it's an important part of income planning. It considers how income changes afterward and its financial effect on the surviving spouse. Income planning takes steps to help protect married couples in the event of death. It accounts for a change in tax status from married filing jointly to a single filer. Our SHP Financial team provides peace of mind to couples planning for the inevitable with provisions for a continued income stream and security for the surviving partner.
No matter your life stage, it’s never too late to plan for retirement. Our SHP Financial team will create a comprehensive retirement plan with an income strategy primed for cash flow, safety, and growth. We’ll help you identify and address income gaps to set a course for a healthy retirement plan and financial freedom.
Start Journey to Retirement NowOur Clients' Experiences
All of the following testimonials are from current SHP Financial clients, and no compensation has been given for their statements.
