Retirement Income Planning

The “R” Word… The one we all talk about reaching but are afraid to sacrifice for. Retirement is, in our opinion, the most talked about subject our clients would like to plan for. It is something that every human dreams of attaining. The long days of wandering an empty beach, taking a dip in the warm Caribbean water, a “bucket list” trip to a country you couldn’t visit on a whim when you had a job. The possibilities are endless, but only if you have a plan that gives real-world solutions and steps to help you pursue them.


There are two phases of one’s retirement journey we need to talk about. The accumulation phase and the distribution phase. Discussing both will be essential in our topic of income planning during retirement.

Accumulation Phase

The accumulation phase is where the journey begins. You are a working member of the American economy and paying your taxes (so fun, I know). Most companies offer qualified retirement plans, the most popular being a defined contribution plan (401k). The employee defers an amount per paycheck and gets invested in a mutual fund. The employer usually offers a matching percentage of the employee’s contribution (up to a max) as a pre-tax contribution. Pre-Tax contributions can potentially lessen your tax liability due to a deduction from your AGI (adjusted gross income) since the amount has not been taxed yet. However, at withdrawal, the amount will be taxable at your ordinary income rate. An employer can now contribute post-tax (Roth) monies due to SECURE 2.0. Roth contributions and deferrals are “after-tax,” meaning they have already been taxed and provide tax-free earnings growth (assuming the requirements have been met). Employees will review their time horizon for the investments to compound, risk tolerance, and the expected return rate to better understand the future value at their projected retirement date. Whether you elect to defer Roth or pre-tax contributions, maximizing this tax-deferred or tax-free retirement vehicle will only assist in reaching your retirement goals.

For example, a young professional, age 25, invested $6,000 a year with an employer match of $3,000 for 40 years earning 10% a year. At age 65, with no increases to contributions or employer matches over the said timeframe, the employee would have about $2,655,555 in retirement assets. That is the power of compound interest at its best! Individuals still in the accumulation phase need to utilize these qualified plans to better position themselves for achieving their retirement goals.

Distribution Phase

You’ve made it! It’s finally time to enjoy the spoils of your labor. It can often be an exciting yet uncertain time as you have ample free time and all the time to worry! Where is my income going to come from? Will it last? how much do I need to survive? Hopefully, these are all questions you’ve already discussed with your CERTIFIED FINANCIAL PLANNER™.

Let’s start by answering the question, “How much do I need per month?” The general rule of thumb when doing retirement planning for the distribution phase is about 70% of your pre-retirement income, as your expenses will(hopefully) be less as you pay off cars, houses, etc. This is not a one-size-fits-all approach and is meant to be a starting point. What I like to do with my clients is discuss their fixed and variable outflows first. Fixed outflows would be their bills that don’t change monthly (rent, mortgage, car payment, health insurance, etc.), and variable outflows are items that can vary, such as dining out, shopping, trips, groceries, etc. I like to reinforce that you need to give yourself some wiggle room on the variable outflows to be sure you do not overspend. Better to have leftover cash than be in debt. Once we know how much you spend, we can determine your lost income replacement amount.

The replacement amount of lost income refers to the income lost at retirement. There are many ways to replace lost income (qualified account withdrawals, social security, pension, etc.); we look at maximizing your social security distribution depending on your situation, as there may be a benefit to prolonging taking it to let it grow and max out at age 70. If you have a defined benefit plan, there is something called Social Security integration, where the amount of your Social Security payment may reduce your defined benefit payout. These are all factors we review before taking a distribution and are essential in optimizing your income stream to meet your needs.

What about ensuring that your income will last you for the rest of your life? While there is a multitude of factors and in-depth discussions that go into the investment mix and risk/reward trade-offs. I’d like to dive into our process, which can also be found on our Investments webpage.

Operating off the notion that no two clients’ situations are identical. Thus, we should not treat their portfolios as such. We are active investment managers at our core and use an in-house portfolio philosophy titled “Project X-Ray,” centered around dividend equities as the core holding. For some clients, the percentage may be higher; for others, it may be less. We merely believe that dividend equities (more specifically, dividend growth equities) provide a solid foundation for long-term capital appreciation and lower volatility with a consistent and growing income stream.

“Project X-Ray” proprietary structure for investing that we consider for each client:

  • Core Dividend Equity
  • Bonds (taxable or tax-free)
  • Growth Enhancements (Securities with a primary goal of capital appreciation)
  • Income Enhancements (Securities with a primary goal of income generation)
  • Alternatives (Real Estate, Metals, Commodities, etc.)
  • Private Credit (Debt not traded on the public markets)
  • Illiquid/Direct Investments (Hedge Funds, Private Equity, etc.)

Asset Allocation is essential in creating an “all-weather” portfolio that can withstand different stages of the market cycle. Instead of focusing on specific growth or value style equities or Large-cap/Small-cap market capitalization boxes, we look at these with the client’s objectives in mind and their particular function in the overall portfolio.

While we create the strategy and portfolio in-house, we can potentially utilize specialty investment managers for their vast expertise in a specific field. Being an independent investment professional allows us to craft customized portfolios for our client’s needs.

So the question of “will your money last” lies in the above. We look to create a portfolio that distributes an income stream (dividends) regardless of where we are in the market cycle. Even growing the dividend over the longer term. This does not mean we “set it and forget it.” We are active money managers at our core and will make adjustments as needed. Our duty is to ensure our clients are happy and well taken care of.  That includes thoughtful consideration of their financial plans and portfolios.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.