Retirement Payment Protection Plan
I’ve lectured and written about how important income planning is. Income planning strategies are very different than growth strategies. Seeking a higher rate of return is not a strategy. Owning bonds for interest or stocks for dividends, are not strategies. When employed, your paycheck determines your lifestyle. In retirement, your playcheck will determine your lifestyle. What will your retirement income be while not working?
When employed, your employment and career provides confidence and a sense of security during difficult times. In retirement, the psychology is exactly the same!An effective income planning strategy in retirement may not be materially affected by another pandemic, or a stock market crash.
We have now experienced three “Black Swan” events in the past twenty years! A Black Swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. The stock market decline due to the “tech bubble” and 9/11 terrorism in the early 2000’s was severe. The stock market decline due to the “Great Recession” of 2008/2009 was severe. Covid-19 triggered a very fast stock market decline, the shutting down of our economy and suppression of our rights.
The volatility of the stock market during the past twenty years presents an opportunity whereby competent income planning is more critical than ever before. The financial industry often sells rate of return in marketing, while we’ve seen Black Swan events crush account values. Income and distribution planning strategies are not as sexy as growth strategies to discuss. However, seeking a 4-6% income utilization strategy that’s durable under varying economic conditions, requires skill and a comprehensive approach.
If your Playchecks are protected, then your lifestyle is protected. We review what a family’s Income Stability Ratio (ISR) is. We model stress tests such as a stock market crash to determine what the impact to lifestyle might be. Investment risk is a choice and therefore, investment losses due to the stock market can be somewhat controlled. If your lifestyle is more important to you than inheritance, then align your strategies with that objective. If you are still using growth strategies in retirement, then your income security may be at risk while your beneficiaries will spend the growth if it happens.