Like the 70-year-old female in my previous article who is looking to increase her retirement income, you might still be pondering how to make your retirement savings  work for you the way it did in your parents’ day.

That got me thinking: A big part of the appeal of those plans from decades ago was their simplicity. You got income, you maintained principal. But simplicity today may come with a price — a tripling in fact.

It turns out there is a way you can have a plan that hits easy-to-understand goals but uses more sophisticated planning, annuity payments and lower costs to eliminate much or all of the price increase. Here’s how to begin:

Keep It Simple

Most people start the planning process with fixed retirement goals in mind — something like $80,000 in annual income generated from $2 million in retirement savings and the same amount as a legacy. (It happens to meet the “4% rule” that many advisors follow, although that rule may be “dead” per this Advisor Perspectives article.) Whether or not such a plan is achievable, these simple goals create a starting point from which alternative plans can be measured and confidence can be built.

Creating this kind of specificity with Income Allocation planning requires analysis of literally millions of plans. Happily, with technology and experience, that analysis is now available to you. After considering your personal and plan data, we will enable you to Name Your Plan by using our tools to solve for the plan design and market return that meets both your income and legacy objectives.

Our Retiree Names Her Plan

To begin, you provide plan data, including your age and gender, marital status, your retirement savings, percentage of savings in your rollover IRA, desired inflation protection and your risk tolerance as measured by the percentage to be invested in stocks. None of the plan data changes as we sift through (electronically, that is) the millions of possibilities.

The key driver of achieving both of your objectives is the long-term return in the stock market.

Now we are zeroing in on the plan that will get you what you want. And it is important to understand that the stock market returns affect your results less than you might expect. When they do affect the plan, the impact will be on the legacy you leave, instead of your annual income.

How We Enable You To Name Your Plan

As an example, here is how our retiree from last week’s article set her twin goals for income and legacy:

1. She revealed that only 50% of her $2 million in savings is in a Rollover IRA, rather than 100% from the previous article.
2. Rather than $80,000 per year, she reconsidered and set her annual income goal at $70,000 growing by 2% per year. Together with a Social Security check that also grows, she believes she could live comfortably on the combination of the two.
3. She wanted to leave her kids and grandkids a legacy of $2 million — her current savings. She understands that market results and plan design may prevent her from achieving that goal in every year and so is targeting that legacy target at her approximate life expectancy of 90.

As we’ve seen, recent studies would suggest that it’s just not possible. Let’s adjust for legacy in her plan to see if it is.

After using the Go2Income Income Allocation tool to create her income plan, she can now use the Legacy Planner below to estimate what stock market return it would take to deliver both her income and legacy targets. Because personal situation and plan objectives are unique to her, the Legacy Planner is personalized, and it developed results just for our retiree. (Sharing a “one-size-fits-all” planning tool just can’t get the best results for you.)

                   3%             4%            5%            6%            7%            8%           9%

                           Estimated Stock Market Return (ESMR)

Note: ESMR is based on a sampling of plans.  Ask Counselor to create Your Plan.

Balance Your Needs

The Legacy Planner shows that it would take a long-term stock market return of 6.3% to meet her legacy objective – and maintain her income goal. If returns have fallen short by the time of her passing, remember that the kids/grandkids will have their lifetimes for markets to recover.

In other words, legacy-income planning method matched the targets of a “live off the interest and leave the principal” plan from yesteryear, without putting her retirement at risk.

You can do the same. Visit Go2Income for more information on how Income Allocation can help you reach your income and legacy goals, or contact me to discuss your situation.