We all hope to achieve our “dream” retirement. But hoping isn’t enough. Nor is simply saving a lot of money. As any successful person can tell you, the surest way to make your dreams come true is to have a true strategy. And when it comes to retirement income planning, that means a strategy characterized by five crucial components. It must be a strategy that is:
1. Holistic
2. Aligned with Your Goals
3. Designed to Reduce Stress
4. Built to Last
5. Flexible
In this blog, you’ll learn how an income-first strategy — meaning one that shifts your investment focus from growth-first to income-first — incorporates each of these components and is, for many people, the key to achieving their dream retirement.
Holistic
For most people, a “dream” retirement doesn’t mean a lavish one. It simply means comfortable means secure. If you’re like most people, your dream retirement allows you to live the same lifestyle you’re accustomed to and to do more of the things you never had time for while working. Things like traveling, dining out more often, pursuing hobbies, and generally doing all the things that make you happy and fulfilled.
Of course, for some people, their job is the main thing that makes them happy and fulfilled. If you’re one of those people and you retire without knowing how you’ll fill that emotional void, it won’t matter how much money you have or how it’s invested; your retirement won’t be satisfying because you’ll be restless. On the flip side, if you have outside interests but don’t have a strategy that provides enough income to pursue them, your retirement probably won’t be happy because you’ll be frustrated.
All of this illustrates why it’s important to create a holistic strategy. Holistic means preparing for retirement in a way that accounts for every aspect of your well-being — not just your financial health but your physical, mental, and emotional health as well.
Aligned with Your Goals
The best way to ensure your strategy is holistic is to start the process by identifying your retirement goals. Does your dream retirement involve making a major purchase, such as a yacht or a vacation home? Does it involve moving to a certain “dream” location, or accumulating a certain level of assets?
For some, those are the types of goals that define their dream retirement. But if you’re like most people, your goals are probably simpler. You’re not investing to achieve a certain level of performance or to make a major purpose, you’re investing for a particular purpose. As noted above, that purpose is usually to live comfortably in a nice
place, travel more, enjoy your hobbies, visit your children and grandchildren, and do all of those things without worrying about money.
Once you’ve identified these “purpose-based” goals, another thing also becomes clear: these are probably not the kinds of goals you want to pay for by selling shares of your investments. Rather, they are clearly the kinds of goals you’ll want to pay for from your retirement income stream, which is one of the main reasons why an income-first strategy makes so much sense for most people.
Stress Reducing
It’s no secret that the most common cause of stress for most people is money. That’s why achieving your dream retirement also requires having a strategy designed to reduce financial stress as much as possible.
Usually, stress stems from two things: lack of control, and fear of the unknown. In terms of investing, you deal with both of those quite a bit for most of your working life. That’s because when you’re young and focused on growing your savings, you’re typically invested in things like growth stocks and mutual funds. When that’s the case, you have little-to-no real control over your investments, plus you never know when the market might take another downturn.
That lack of control and element of the unknown is stressful even when you’re in your 30s and 40s and you know you still have sufficient time to recover from a financial loss. But it becomes even more stressful in your 50s and 60s. By that time, you’ve not only lost the luxury of time to rebuild your savings, but you also know that you’ll soon need your assets to start generating reliable income for retirement.
An income-first strategy is specifically designed to greatly reduce or eliminate this element of stress. That’s because when you invest for income first, you are typically investing in vehicles designed to protect your principal from market volatility while generating dependable income at a fixed rate of interest or dividend regardless of market conditions. This approach can also allow you to continue growing your portfolio with less risk (and therefore less stress) through strategic reinvestment.
Built to Last
It’s no secret that people are living longer than ever. That’s great, but it also means that people need to plan for longer retirements. According to the Centers for Disease Control, if you’re a couple in your mid-60s today, there is a 50% chance at least one of you will live into your mid-90s. That’s 30 years, and a lot can happen in three decades. That’s why achieving your dream retirement requires having a strategy that is “built to last”, meaning one that covers the full scope of 30-plus years and accounts for every potential challenge along the way.
Some of those challenges are easy to foresee, such as maximizing your Social Security benefits, minimizing your taxes, and satisfying your Required Minimum Distributions. These are issues that you know you’ll have to deal with in retirement, but if you have a
plan designed to deal with them for only the next 20 years, and you live another 25 years, that could be a major problem!
In addition, there are other challenges that a short-sighted plan might miss altogether. These include the full potential impacts of long-term inflation and healthcare inflation, the need for sound estate planning, and the potentially devastating risk of spending down your principal late in retirement.
Because income-first investing is a truly strategic approach, it addresses these long-term risks and challenges by necessity, making it an approach you can feel more confident is “built to last”.
Flexibility
When it comes to retirement income planning, flexibility doesn’t mean having a strategy you can change on a whim. It means having a strategy you can revise as needed — with the help of your advisor — based on changes in your life or the financial markets.
During your retirement, many things could change: your situation, your goals, your health, or even your risk-tolerance level. Therefore, it’s essential to have a strategy you can adjust as necessary — considering all those changes — to ensure it continues to suit your needs and keep you on track to achieve and enjoy your dream retirement.
It is equally important to have a strategy your advisor can adjust on your behalf, and with your input, to help minimize risks and maximize opportunities when the markets change. An income-first strategy is specifically designed to allow for these adjustments through ongoing active portfolio management. An Income Specialist uses a variety of techniques and strategies that can help ensure you continue to maximize your retirement income return even in the face of dramatic market changes!
Summary
A first growth approach may have made sense in your working years when growing your savings was your main objective. But once you’re in your 50s or 60s, the key to achieving your dream retirement, for most people, involves shifting your focus to a strategy you know is holistic, aligned with your goals, designed to reduce stress, built to last for 30-plus years, and flexible enough to account for potential change. In our experience, this means an income-first retirement strategy, which is exactly the kind of strategy we specialize in at Sound Income Group. Our founder and CEO, David Scranton, champions this philosophy in his bestselling book, Retirement Income Source: The Ultimate Guide to Eternal Income, which is available on most major online bookstore sites.