10 considerations for creating a perfect income plan

One of the biggest concerns retirees face is the fear of running out of money during retirement. As you transition into retirement, one big question that is front and centre is “How much monthly income will my retirement account and other investment accounts provide me?”

This is a real question faced by many. Once retired, your regular monthly or bi-weekly cash that is credited to your bank account without fail comes to a stop. Unfortunately, your bills and lifestyle needs do not stop.

When planning for your income during retirement, it is important to design an income plan that will give you peace of mind. In other words, you need a plan that guarantees a minimum monthly income required to meet your basic needs, plus more, for the rest of your life.

This plan should include guaranteed income sources like Canada Pension Plan and Old Age Security payments in Canada, Social Security in the U.S., Company’s pension benefits, where applicable, and annuities.

In his book, Retired + Free, Pedro Adao, provides the following key attributes of what a perfect income plan might look like:

  1. Monthly income that exceeds your expenses. This is self-explanatory. But, it is not always easy to achieve in retirement. Thus, the first goal of any income plan is to provide enough income to support your lifestyle, at least, at a basic level.
  2. Guaranteed income that can never be reduced. Once your lifestyle has been established on a certain level of income, any reduction in income could require sacrifices to lifestyle. Therefore, it is best to use guaranteed sources of income to meet your basic income needs required to maintain your lifestyle. This will provide you with a financial foundation.
  3. Guaranteed income that will last forever. Having sufficient income to cover your cost of living is great. However, this is not enough. You want an income that is guaranteed to last for life. With this, you avoid the fear of running out of money. Guaranteed income that you cannot outlive provides comfort.
  4. Guaranteed income that can be increased over time. An amount of income sufficient to meet your lifestyle goals in the first few years of retirement might not be enough once you get into the middle and later years of retirement. The perfect income plan should be able to increase income over time to help keep up with increased medical expenses or with rising inflation.
  5. Tax efficient. If not planned carefully, you may end up paying a lot of taxes during retirement. A well-designed income plan will seek to protect as much of your income from taxes as possible by maximizing your available deductions and landing you in the lowest tax brackets possible given your income level.
  6. Access to lump sums. While income is probably one of, if not the most important consideration in retirement, there still might be times where you need access to lump sums of money. A well-designed retirement plan will not only provide all the income benefits we discussed but also give you access to lump sums of money along the way should you need it as a safety net.
  7. Minimal fees. During retirement, you’re relying more on your savings and investments to provide you with income. Therefore, it is important to reduce or eliminate the fees that are being charged to your accounts where possible. It’s simple, the more you pay in fees to other people, the less you have. It’s time to minimize fees going to other people and financial institutions so that there is more for you.
  8. Easy to understand. While implementing an income plan will take some work, it doesn’t have to be overly complicated and beyond your understanding. True confidence and peace of mind can be easier to achieve when we replace complexity with simplicity.
  9. Not stock market dependent. With the volatility that is synonymous with the stock market, a well-designed income plan should not be largely dependent on stock market gains. You need an income plan that will provide you with guaranteed income regardless of what the stock market is doing. This is essential to achieve freedom from stress, worry, and fear.
  10. Can be adjusted over time. One thing that is constant in life is change. Therefore, being able to adapt and respond to life events that occur during retirement is an important and often-overlooked requirement. A key feature and major benefit of having the perfect income plan is its flexibility.

Final Thoughts

A perfect income plan will consider the safety of income, the longevity of income, and the simplicity and flexibility of the plan. The exact components of the perfect income plan will vary widely from person to person but with careful planning, it can be designed to meet your specific needs.

P.S. I am on a mission to arm you with financial education. That’s one reason I started writing on medium and that’s why I wrote Tax-Efficient Wealth. This book will help you accelerate your wealth in a tax-efficient way. Grab a FREE eBook version of my new book, Tax-Efficient Wealth, to learn how you can build wealth quickly using strategies that will save you a ton in taxes.

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The author KGreen