If your boss offered you an increase in pay totaling $450,000 from age 40 to retirement at 65, your first reaction would probably be joy, followed by relief knowing that your retirement finances would be in good shape. Then you might ask some questions. Like, what do I have to do to earn that money?
When Go2Income determined that an Income Allocation retirement income plan could produce an Income Boost of as much as $450,000 over a typical Asset Allocation plan, I expected to hear lots of joyful reactions. Instead, the possibility of such an improvement in retirement fortunes raised more questions.
Fair enough. When you count on your retirement savings, together with Social Security, to produce the bulk of your retirement income, it is wise to be careful.
On the other hand, it is smart to consider and investigate new approaches. Some of them might result in a much better retirement. Smart investors have lots of questions about new ideas. I will answer the questions regarding Income Boost in the sections below.
If this Income Boost is possible, why hasn’t my investment advisor presented it to me?
I have been asking that same question for a number of years. Most advisors, in my experience, rely solely on asset allocation – splitting your savings among numerous investment options – and formulaic withdrawals from these savings. Their personal interest is often in managing those savings for as long as possible.
An Income Boost, however, is based on Income Allocation that delivers lifetime income. You determine your income and legacy objectives, and then the Income Allocation planning method finds the sources of income that will meet those objectives with the least amount of risk.
Including annuity payments that provide guaranteed income for the rest of your life is a key differentiator under Income Allocation. Additional sources of income come from dividends, interest, and withdrawals from your IRA, as well as Social Security.
I do believe that your Income Boost is possible. But there must be other “gotchas.” Right?
Nothing we can’t deal with.
One concern often mentioned is that annuity payments, which can end with the passing of you or your spouse, reduce the amount of savings that would otherwise go to your kids, grandkids or favorite charity. Of course, a retiree can buy an income annuity that guarantees that the investment in the annuity purchase will be paid out even at early passing. Or if you own life insurance that can mitigate that risk.
Another perceived gotcha is that the income annuity is not liquid. It’s important to understand that under the definition of liquidity, most of your invested savings are not truly liquid, either. While you can take withdrawals from your investment accounts under Asset Allocation, future income from that source will be reduced. (Liquidity is defined as having access to money without any other financial effect.)
And remember that only a portion of your savings, typically from 25% to 40%, would be invested in income annuities under an Income Allocation plan. The right mix of stocks, bonds and cash, with Income Allocation’s lower fees and taxes, will allow you to build a significant financial legacy.
I like my current advisor. Won’t I have to fire my advisor?
Keep your current advisor for the portfolio management of the 60% to 75% of your account that remains in the markets. At the same time, you can still follow the Income Allocation plan management service. You will keep your advisor happy – and save in fees.
Suppose that your advisor charges annual fees of 1% of the value of your portfolio — now at $1 million. That would mean you pay portfolio management fees of $10,000 a year. If you allocate $300,000 to lifetime annuity payments, your advisor will be managing $700,000, for fees of $7,000 a year. Go2Income’s plan management fees, by the way, will be $900 per year. Overall, you will be spending $7,900 a year, an annual savings of over $2,000 per year that goes in your pocket.
Of course, if you are looking to change advisors, Go2Income can recommend some lower cost alternatives.
I’m still nervous. Is your Income Boost really worth the effort?
They say that the 8th wonder of the world is the magic of compound interest. In planning for your retirement, $10,000 invested at age 40 and each year thereafter to age 65 is worth more than $500,000 at retirement, assuming a long-term return of 6% per year.
There is an equivalent wonder after retirement. It’s the power of generating more income than you need. If you can generate $10,000 of additional income through an Income Allocation plan at age 65 and each following year, then 25 years later at age 90, it will be worth another $500,000, assuming that same 6%.
Those kinds of numbers can change your retirement. You will leave a larger legacy than you ever expected. Or you’ll have funds to pay for caregiver or unreimbursed medical expenses more likely to occur late in retirement. Or maybe you can think of another way to spend the money.
How do I find my Income Boost?
Go2Income makes it very easy to calculate what you might be generating compared to your current situation. Submit a few numbers at our Income Boost calculator and we will provide you with a quick assessment about your Income Boost. After receiving your Income Boost report, you can continue and refine the plan on your own, or talk with an advisor-counselor to quickly determine how much more your savings can earn for you.
I developed Go2Income after a career spent analyzing and creating retirement products in the life insurance and securities industries. Annuity payments purchased from highly rated insurance companies simply belong in a Plan for Retirement Income. Together with smart, low-risk investments in the markets, they are an unbeatable combination.
Did I answer your questions? Talk with an advisor-counselor if you are ready to explore what an Income Boost can do for you.