The Three Stages of Retirement Income Planning
By estate planning attorney Rick Law of the Estate Planning Center at Law Elder Law. Law Elder Law is a multi-generational firm serving seniors and their families in the heart of Kane County in Illinois. Diamonds are valuable, but you can’t eat them. Assets have the same problem. If you need income, you must change assets into income streams. Most of our clients are in their 50s and 60s. Overall, they have economic success, which ranges from the comfortable to the very fortunate. Most have spent their entire adult lives creating assets such as 401(k); pensions; IRAs; real estate; brokerage accounts; business accounts; residences; vacation homes; farms and more. Despite their impressive investments and commendable frugality, very few have the foggiest idea how to transition from asset building to income stream creation. We look at retirement income planning as a collaborative process with a client. Often the hardest part is just to get the client to actually define their monthly budget target number. That number is the net dollars needed or wanted per month to pay their basic bills and any lifestyle expenses. Any money over the basic bills and lifestyle expenses is what we categorize as excess, which a client can then opt to use for planning for charities, luxuries and legacy. We break healthy retirement income planning into three stages.
- Years one and two, when your income sources are your social security, pensions, and direct withdrawals from liquid savings.
- Years three through ten, when the biggest problem for seniors is achieving adequate growth while they are systemically withdrawing income or consuming principle.
- Years ten to infinity, which we call the golden years of retirement. The golden years can easily exceed thirty years when doing a couple’s retirement plans. They need to think about two different categories of inflation. There is systemic economic inflation and senior healthcare cost inflation.