Retirement Income Planning – Part 2

Once you have secured a steady stream of retirement income, the next step is to make sure that you continue to give yourself a raise every year.  Just as you were accustomed to regular increases in income during your working years, in retirement you will need to increase your income over time as well in order to stay ahead of inflation.

Inflation takes a toll on fixed-income investments because they are just that: fixed. If your cost of living goes up at the average historical national inflation rate of about 3.6% each year, your income has to be able to increase by that amount as well to maintain the same standard of living. Fixed investments are not designed to grow over time.  Their main purpose is to provide a steady stream of FIXED income.

So how do you keep pace with, or beat, inflation during your retirement years?  The answer is to invest a portion of your portfolio in securities that are NOT fixed, and that have the potential for growth. A well thought out strategy taking into consideration all of these types of securities can help to reduce the risk in a portfolio.

For many soon-to-be retirees this can be counterintuitive because there is a fear of losing a part of the nest egg you worked so hard to save over the years.  While it is comforting to see a steady balance on your statements each month, and unsettling when there is a dip, most people want and need some growth to alleviate concerns about outliving their income.

We see many clients who are afraid to have a portion of their accounts invested in securities whose value will fluctuate because they don’t want to lose any money.  However, the reality is that they are losing ground if they keep the money in cash or a low-interest savings account that earns less than inflation.

Our job as advisors is to educate our clients so that they understand the need for several types of investments throughout the retirement years.  Our goal is to allocate our clients’ retirement income portfolios with fixed securities to provide a steady income, complemented by growth-oriented investments to outpace inflation, while keeping enough spending and emergency money liquid so that they can sleep at night.  It’s a tall order, but one that we take seriously.  With the help of sophisticated financial planning software we can help you plot a course to a dignified, comfortable retirement where you have the best chance of not outliving your money.  We review the plans at least annually to be sure we are on top of any changes in your situation that can impact you financially.  If you or someone you know would like to get started on a path to a more secure retirement, call our offices today.


Posted by: Cheryl Sternasty, CFP®