Income planning is, and should be, an integral part of retirement planning. It is not enough to assure you have enough assets in retirement; you also need to know how to use your assets in a strategic manner that allows you to preserve principal and generate enough income to live on for the rest of you and your spouse’s life.

With regards to retirement, there is a common belief in the advisor world that we should help people exhaust their assets during their lifetime. In other words, use their principal, and the income from their principal, to live on for the rest of their life. The so-called “Monte Carlo” proposals use a suggested interest rate that you will earn over the balance of your life, and the interest and principal will generate income from those parameters, depending of course, on the amount of assets you begin with. There are many flaws in that thinking. I will expand on those flaws.

First, setting a projected rate of return is downright foolish. Does anyone really know what a given return will be on a selected investment portfolio? As investment advisor for most of my 31 years of experience, I can assure you that no one, including myself, can accurately project a future return. As all the disclaimers state, all an advisor can do is “project” based on past results. Can we expect similar results in the future, based on past results? Do we communicate in the same way we did 10 or 20 years ago? Do we do anything the way we did it in 1995? No. Then why do we think that investment results will be similar to the past?

There are some days in the “equity market” (defined as anything that can rise or fall with no guarantees of how much they move or when) that see dramatic shifts, moving quickly in one direction within minutes and then move the other direction immediately after. This kind of activity did not happen 30 years ago, not to mention even 10 years ago.

One of the biggest flaws in the “Monte Carlo” approach is planning to use all your assets—spending all of your money, which is wrong. No one really knows how long they are going to live, and furthermore, we are seeing longer life expectancies. We also won’t know the price of essential goods in the future—we won’t know how far our dollars will stretch. This is why you have to plan on using income earned on your assets, as a parameter. That way you never run out of income or assets.

The reality is that many consumers are facing outliving their retirement money or are sacrificing their quality of retirement because of longer life expectancy, inflation, and exhaustion of the principal of their assets.

With that said, there are several financial instruments, such as annuities, in the investment and retirement planning world that can solve these retirement planning challenges.

Not only can these products provide guaranteed income, they can do so for the duration of your life. If you have legacy concerns and want to concentrate on that aspect of planning, you can, and still have substantial guarantees.

Despite the issues facing the next generation of retirees, there are viable options. What will fit for you, will depend on your unique set of needs and objectives. It’s all doable, with the right advisor to guide you through the process and to help you develop the most appropriate strategies.

Being 62, and very involved with my own retirement, and having 31 years of experience in this industry, I live every day with the task of making the right choices. I can do the same for you.

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