More than half of those facing retirement have seldom done a simple calculation of the resources that they'll need to have a confident retirement.  This is surprising, especially when proper planning can make limited resources stretch further, allow retirees to feel confident about enjoying their retirement, and ultimately help to ensure a lifetime of financial independence.

As retirement approaches, concerns shift from saving for retirement to planning for retirement income.  When work stops or becomes part-time, a retirement income plan must address how to replace a paycheck with stable sources of income to meet expenses.  And besides regular income, retirees also have unexpected expenses, the desire to spend more if they can afford it, and other financial goals such as leaving money to family or a favorite charity.  This is all in the face of the many risks that retirees face, which you can review here:

There are several reasons why one should have a professional retirement income plan:

1. Planning equals independence - those who plan have been found to be more confident, worry less, and even report more life satisfaction.
2. Insufficient income streams - many people today do not have sufficient income from Social Security and company pensions to meet income needs, and they need to carefully consider how to take 401(k) accounts and other assets and convert them to income.
3. The task is complex - strategies have to address income needs, other financial goals, and the various risks faced in retirement.  Also, as change happens to individuals, their families, and the investment environment, the plan has to react timely to the new circumstances.
4. Stakes are high - failure potentially means running out of money at an older age when it is too late to do much about it.  At 50, 60, or even 70 there are more options for a financially confident future.

This leads us to the question of when retirement income planning should begin.  We often think about accumulating resources for retirement and the retirement income phase as two separate parts of retirement planning, and in some ways this is true.  But what we've come to realize is that there is a continuum from the saving phase to the spending phase and there is a lot that we have learned about retirement income planning that helps in the savings phase too.  So in many ways, retirement income planning starts when saving for retirement begins.  And clearly, there is also a heightened awareness 5-10 years out from retirement when retirement costs and lifestyle begin to get clearer.  This is typically the appropriate timeframe to create the first comprehensive retirement income plan if it hasn't been already.

A financial advisor that has earned the RICP^® designation*, Retirement Income Certified Professional, has in-depth education and training on what can to be done to build a retirement income plan, and can help you customize a plan of your own.  Often they will serve as the "quarterback" of an advisory team that can include attorneys, accountants, investment advisors, insurance agents and other professionals.  Although some advisors may have the "alpha" ability to pick investments that outperform their peers, it is the RICP^® advisor's "gamma," the quantification of the other factors that go into sound financial planning, that can add tremendous value to the client's retirement income plan.  Research has shown that a retirement income planner can help a naïve investor increase income in the following areas:^1,2

1. Social Security Claiming - 9.0%
2. Dynamic Withdrawal Strategy - 8.5%
3. Tax Efficiency - 8.2%
4. Total Wealth Asset Allocation - 6.1%
5. Annuity Allocation - 3.8%
6. Liability Relative Optimization - 2.2%

These six decision-making factors, which make up "gamma," could provide a 38% increase in retirement income.¹  While most people preparing for retirement tend to focus on the easily quantifiable investment return, the intangibles provided by retirement income planners create real added value for prospective retirees.

1 Retirement Income Process, Strategies, and Solutions, David A. Littell and Jamie Hopkins, The American College of Financial Services Press, 2020.

2 https://retirement.theamericancollege.edu/video-library/playlist-retirement-income-101

*The RICP^® is the property of The American College of Financial Services, which reserves sole rights to its use, and is used by permission.