Understand the difference between “accumulation planning” (working years) vs. “income planning” (pre-retirement and retirement years)

Have you ever felt like stockbrokers, the financial press, investment managers, and financial advisors are speaking another language? It may be because they are focused on accumulation planning, while you are more concerned about income planning.  Let me show you the difference.

During working years most investors focus on accumulation planning. It’s about saving and investing and making the “pile of money” as big as possible.  We have income from our jobs and continue to save, so market downturns don’t bother us as much.  It is easier for people who are still working to deal with market swings.  “I don’t need that money for a long time anyway,” working people tell themselves. But as we near retirement, we are less concerned about the money we have accumulated and more concerned about the income our money can provide. Many people who are nearing retirement are uncertain of how to access the money they have saved, how much they can take out, and don’t have a plan to draw income in the “smartest” way possible.

Income planning is the process of figuring out how much income is needed and putting together an investment plan and withdrawal strategy that gives the client the best chance of success. “Success” to most clients is defined as never running out of money. Many people who are nearing retirement or are already retired are still using accumulation planning. This can be dangerous to your income stream.  Most stock brokers, financial advisors, and the financial press are still consumed with accumulation planning and making the pile of money as big as possible.  But a different strategy is required when you near your “last paycheck”.

Do you know how much income you can “safely” draw from your investments? Are you taking your distributions in a way that minimizes your taxes?  Do you have an investment plan that can provide income during a “down market”?  How can you prevent drawing down the principal of your investments and still provide income?  Do you know the “best” account to draw your income from?

Retirees and pre-retirees need answers to these questions. The strategies for income planning are very different from those used during accumulation planning.  The ability to access your money, principal preservation, and income generation are keys to successful income planning. Make sure you understand the importance of income planning or work with an advisor who specializes working with investors like you and can help you avoid the common mistakes. When you retire it is important to limit mistakes with your money since you do not have income from your job and lots of time to make up for any errors.