Retirement Income: Looking at the Whole Picture

People approaching retirement typically have lots of questions centered around money: Will my retirement income be adequate to take care of my needs? Do I have the right mix of assets in my portfolio? How will inflation affect my lifestyle?

Finding the answers to these and other important questions about retirement can seem intimidating—so much so, that lots of folks never get around to asking them.

Fortunately, there are answers available. As a professional financial planner and adviser, one of the most valuable services I provide to my clients is helping them address these questions as we assess their retirement goals, their available assets, and their investment philosophy. Throughout this process, I encourage my clients to keep in mind the entire picture: not only their investment portfolios and the financial markets, but also their other sources of income, such as Social Security, pensions, and other assets that could potentially be positioned to provide greater financial security during retirement.

As we focus on the investment portfolio and its role in providing retirement income, we need to keep in mind that financial market assets (which exclude real estate) can provide income in three basic ways:

  1. interest (such as that paid by bonds, certificates of deposit, and interest-bearing bank or money market accounts),
  2. dividends (such as those paid by stocks and mutual funds), and
  3. capital gains (the appreciation in value of an asset over time).

I especially encourage my clients to consider the first two of these qualities. Interest and dividends are the “steady drip” from a portfolio that can help keep your “income bowl” as full as it needs to be to provide the financial security you require. Such income generated by your portfolio can also help you weather the temporary unfavorable fluctuations in value that go along with investing in the financial markets.

Of course, the most vital step in retirement planning is looking ahead to anticipate, as much as possible, what your income needs will be. You should project those needs well beyond the immediate future, especially since people are living longer and longer after retirement. In this connection, it is important to estimate what rate of inflation you are likely to experience, because this will factor directly into how much buying power your future dollars will have. Your forecasting should incorporate regular sources of retirement income, such as Social Security and any pensions you might receive. The difference between the total of these sources of income and your monthly, quarterly, or annual income needs must be provided by income generated from your portfolio: your IRAs, 401K, or any other accounts in which you have assets earmarked to provide retirement income.

Does all this sound complicated? It can be, for some people. This is where a qualified financial planner can prove invaluable. A planner can meet with you and listen carefully, learning about your goals, your lifestyle needs, and your attitude toward investment risk. The planner can discuss the various investment options and strategies available to keep you on track to meet your goals.

A qualified financial planner can help you assess your portfolio to determine whether your current asset mix is appropriate for you and what you need to achieve. A planner can follow up with you through the years, advising and counseling you about shifting market conditions, changes in your circumstances, and even meeting previously unanticipated needs. Most important, a qualified financial planner can help you find the most cost-efficient way to position and administer your portfolio, along with providing assistance on tax-efficient strategies for maintaining income and portfolio return.

Stay Diversified, Stay Your Course!