Retirement Income Planning

Retirement Income Planning

dogs guiding each other on their future
As clients enter retirement, the most frequent concern is, “how does this all work? When I retire, which accounts should we drawing from first, and why?” The answer to this is part of retirement income planning.
As clients enter retirement, the most frequent concern is, “how does this all work? When I retire, which accounts should we drawing from first, and why?” The answer to this is part of retirement income planning.
dogs guiding each other on their future

Forget the rules of thumbs you have heard from media and well-intended friends about retirement income. Following this advice can weaken your financial condition. 

For example, taking Social Security income benefits at age 62 – the first possible year – is what 70% of recipients choose. As a result, they lock in a reduced income benefit for the rest of their lives. 

However, taking Social Security income at the maximum benefit age of 70 may not be the best idea either, for a variety of reasons. 

The standard practice of taking these benefits too early, or the rule of taking Social Security at age 70, can weaken a retirement income plan. 

The best time to take Social Security income depends on each client’s situation and include factors like liquidity, risk-reward, and other income sources. 

Here is another rule of thumb that doesn’t pencil out for many: Electing to take the highest pension payout available rather than considering a lower payout that includes survivor benefits. If the pensioned spouse dies prematurely, this advice will leave the surviving spouse in a severe retirement income bind.

Let’s review another example: Not all income is good income. 

If I told you that one of your real estate investments was generating $20,000 after fees and expenses, that might sound great to you. That is what a tax preparer told one of my clients. The preparer was looking only at the $20,000 income. They did not consider the $1M in equity that was generating this income. 

When I pointed out to the investor that he was getting a 2% return on his equity and asked if this is what he was expecting, he did not share his preparers’ enthusiasm. Neither he nor his tax preparer looked at this as a return rate rather than pure cash flow. 

You can see from these examples that following the rules of thumbs are not ideal for many people. When evaluating sources of retirement income for your plan, Cornerstone will examine a variety of factors. 

  • Account types (retirement and taxable)
  • Entitlements and guarantees (Social Securities, Pensions, Annuities)
  • Passive income (real estate, notes, partnerships, businesses)
  • Deferred income (executive compensation, stock options)
  • Trusts and estates (Inheritance, trust income)
  • Taxation on these assets and income stream
  • Tax bracket management (Creating a combination of income flows that help keep a client below the next highest tax bracket)

 A combination of these factors and current tax laws guide our retirement income recommendations. Cornerstone seeks the most income effective, tax-efficient, risk-reward balanced blend of income streams.

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