Retirement income planning is more complex than accumulation planning.

To estimate how long a nest egg might last, first identify the client’s expenses and available resources during retirement. Retirement accumulation rules of thumb, such as targeting 70-85% of pre-retirement income, are based on averages and therefore should be replaced with identifying a client’s actual spending needs and building a plan to meet those expenses, or determining how much they can afford to spend once resources are repositioned for retirement income.  When helping the middle mass and middle affluent consumers plan for retirement income, a more defensive strategy is needed than just the structured, 4% systematic withdrawal approach commonly used by financial advisors today.

That’s why Part 3 of planning for retirement income is to produce retirement income that will last.

One of the most effective approaches for securing retirement income for the middle market is to ensure that essential expenses (such as food, clothing, and housing) are covered by income from lifetime sources such as Social Security, pensions and immediate annuities. Discretionary spending needs or wants (such as travel and entertainment) can be matched to income from managed sources, such as taxable accounts, personal retirement accounts, employment income (human capital), or other managed sources.

We help advisors choose appropriate retirement income approaches by providing CE courses from today’s experts.

We are a CE Quality Partner of the CFP Board of Standards and have over 50 courses accepted for continuing education (CE) credit for those who have earned the Certified Financial Planner® (CFP®) certification, the College for Financial Planning’s Chartered Retirement Plan Consultant (CRPC) certification, the American College’s designations (ChFC, CLU, RICP), the International Foundation for Retirement Education’s (InFRE) Certified Retirement Counselor® (CRC®) certification, ASPPA and other certification or designations.

See our individual retirement income CE courses below, or invest now in a $99/90-day membership or a $199/365-day membership and have immediate access to over 50 courses!

Planning for retirement income includes targeting both an asset allocation and income allocation.

Asset allocation is the backbone of retirement accumulation and income planning.

Income allocation, or how you create sustainable spending power from retirement assets, is a critical part of the process to make sure that a retiree does not outlive his or her assets.  Income allocation provides a foundation for managing retirement-specific risks by identifying the gaps in lifetime and managed income sources that can be used to cover essential and discretionary expenses, and also help extend the number of years their money might last.

Any income gaps will become apparent using an income allocation approach. Most clients will need help prioritizing their options to close their gaps, and its most likely that a combination approach will be necessary.  It is important to discuss what’s on and off the table for closing retirement gaps.  If clients are relatively healthy, it makes sense for them to delay retirement so they can better preserve their assets, maintain their desired lifestyle, and retire with more confidence.

Working a few more years can also improve retirement security by:

  • boosting monthly Social Security benefits for their lifetime;
  • setting aside additional savings that can grow for 20 years and fund the final years of retirement, and
  • reducing the number of years needed to rely on retirement assets.

Approaches to producing retirement income

There are also a variety of approaches to constructing an income portfolio to meet a client’s specific needs.

  • 4-5% systematic withdrawal plan (SWP), with 50%+ allocation to equities
  • Combination of equities and annuities
  • A stages model for planning income distribution
  • Laddered annuities or long-term Treasuries
  • A combination of TIPS and longevity insurance
  • Time-segmented distributions (such as CDs or money market accounts for the first five-year segment, fixed annuities for the second segment, and the last four segments could be variable annuities, managed accounts, etc. for dollars that will not be used for 10 or more years)
  • Asset allocation improvement and distribution glide paths (decreasing equity allocation throughout the retirement income period)
  • Dynamically managed withdrawal rates

The commonly-used SWP-only plan from a managed account places the entire assumption of income risk on the client.  An effective compromise is to fill a discretionary income gap (Gap B) with a 4-5% SWP from managed assets and combine it with annuitization of a portion of the managed assets (for example, 25%) to fill the essential income gap (Gap A).  The SWP income component offers the flexibility and control needed to meet discretionary spending needs and potentially protect the retiree’s income from inflation. The annuitized income component protects against longevity risk and provides more income per dollar invested than the systematic withdrawal plan due to risk pooling and mortality credits. The managed account then benefits from a lower systematic withdrawal rate, which has a significant impact on the duration of the remaining portfolio’s longevity, and if the client lives long enough, an annuity component can actually preserve the value of the estate over time rather than reduce it.

Review retirement income plans every year.

As a general rule, retirement income plans should be reviewed at least annually.  It is particularly important to observe variances between assumed and actual expenses and investment experience in the first five to ten years of retirement, as it will be easier to adjust at that time versus in the last five or ten years. In addition, life expectancies change with the passing of time and changes in health status. The retiree’s circumstances may change, as well as his or her risk tolerance. Income sources (portfolio assets) will also need to be rebalanced, and new retirement products and income management approaches will be introduced.

The retirement income management process for the middle affluent and middle mass markets require a more defensive approach than most clients and planners realize and therefore needs to go beyond managing assets and systematic withdrawal plans. An entire host of dynamic variables affects the income management outcome, including different types of risk (such as longevity, inflation, health care costs, investment), different types of products (annuities, long-term care and healthcare insurance), and different timing decisions (when to start Social Security, when to annuitize, when to quit working).

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Our courses help you help your clients secure their retirement income.

Topics below include setting targeted income replacement ratios based on income level, marital status, and phase of retirement; understanding how expenses and spending patterns change in retirement; Social Security; Medicare; types of retirement income products and income approaches.

Individual courses are $29 each and include access to:

  • the live or elearning webinar
  • MP3 recording
  • the presentation handout for notes
  • exam for CE purposes with printable instant results
  • Free CFP®, CRC®, reporting ($15 value)
Current PROVIDE Retirement Income Courses
Below is a list of upcoming live and recorded webinar (elearning) courses included in our memberships or can be purchased separately.

Year-end Planning and Compliance Requirements for IRAs – Denise Appleby

Mistakes, including missing critical deadlines, can result in avoidable penalties and missed opportunities for your clients. Gain new insights and important reminders about how to help clients, employees, family and friends protect their retirement savings from avoidable penalties. This session is designed to help retirement professionals get a head start with identifying and understanding the […]

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What Advisors Need to Know About Qualified Longevity Annuity Contracts – Gary Baker

In July, 2014 the U.S. Treasury announced a change that allows for the deferral of income from a qualified DIA (Deferred Income Annuity) to extend past the mandatory RMD age of 70½. There are a number of planning strategies for deploying annuitized assets within a portfolio to help optimize retirement income, and the QLAC ruling […]

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Pensionizing Your (Client’s) Nest Eggs: What, How and Why? – Alexandra Macqueen

With the rapid decline of these traditional pensions over the past few decades, retirees must now create their own plans to ensure the savings they’ve accumulated for retirement last a lifetime. How can you help your clients determine an optimal product mix that incorporates maximizing either a sustainable lifetime income, planned financial legacy, or a […]

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The Stage is Set for Serving the Mid-Market – Betty Meredith

Gain a better understanding and awareness of the needs, research insights, planning approaches, retirement products, federal regulations that set the stage for serving the needs of this market. Retirement savings in IRA accounts exceeded those in employer-sponsored defined contribution plans in 2007. This means more people than ever now need help making informed retirement decisions […]

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Money for Life: Help your plan participants avoid going broke in retirement – Steve Vernon

There is a cultural shift that taking place in DB Plans today regarding employee retirement income and the roles that played in helping employees successfully transition to retirement using their DC savings. People with a DC plan as their primary saving vehicle have not only the personal responsibility of funding their retirement, but they are […]

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08/07/2018 The Holy Grail of Retirement: How to increase income and growth while improving liquidity – Curtis Cloke – REBROADCAST

Understanding what retirees want and what keeps them up at night are major elements for financial professionals to resolve and solve for their pre-and-post retiree clients. It is important to build portfolios that create a base of income they cannot destroy, one they cannot outlive, and when done correctly, protect principal that cannot be lost […]

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The DOL Fiduciary Rule and Your Duty of Care – Blaine Aikin

The Department of Labor’s Fiduciary Rule is here and it is transforming the marketplace for advice. While managing conflicts of interest (fiduciary duty of loyalty) is the central focus of the Rule, the keys to compliance and advisor success are having policies, procedures, and practices in place to fulfil the fiduciary duty of care. The […]

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10/02/2018 Maximizing Your Clients’ Social Security – Matthew Allen – REBROADCAST

With over 10,000 baby boomers claiming their Social Security each day for the next twenty years, you are going to receive many Social Security questions. The average couple receives over $1 million in lifetime Social Security benefits, so for many of your clients, this will be a critical component of their overall financial and retirement […]

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Tax-Efficient Draw Downs in Retirement – Stephen Horan

Conventional wisdom suggests retirees should sequence withdrawals from retirement accounts in a particular order to minimize taxes. This session challenges that advice by leveraging the economics of the risk-return characteristics of various tax structures and provides insights into pre-retirement asset allocation, asset location and importantly retirement drawdown. In “Tax-Efficient Draw Downs in Retirement” you will […]

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12/04/2018 IRA Beneficiary Designations and Surviving Spouse Strategies: Why Many IRA Owners Should Use a Retirement Plan Trust – Rex Hogue – REBROADCAST

This course is brought to you from a recent live webinar and will be REBROADCAST on Tuesday, December 4, 2018, 3:00 PM – 4:00 PM EST. Attend the upcoming rebroadcast to receive CE without the need to take the online exam. Purchase of this course prior to the rebroadcast date gives you access to the […]

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Investing in Bonds in a Rising Rate Environment – Greg Prost

What can clients and plan participants who are within 10 years of retirement do to better protect the value of their savings as we enter a new era for interest rates & bonds? There are 78 million reasons driving the need for a tremendous increase in the number of professionals prepared to competently help retiring […]

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Reverse Mortgage Strategies for the Middle Market – Shelley Giordano

Home equity is the largest asset middle market retirees have after the present value of their Social Security and pension benefits (working in retirement is 3rd; savings is 4th). In a time when lifetime income sources such as pensions and Social Security benefits are declining, accessing home equity will become more important as people live […]

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