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Retirement Planning > Spending in Retirement > Income Planning

Income Planning Coming Into Its Own

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Having adequate cash on hand was a basic need even before it was dubbed ‘income planning,’ according to financial planners interviewed.

But now that it has a moniker, these advisors say this discipline is “huge” and needed, and it will be a bigger part of the financial planning process going forward.

“My clients don’t use the current buzzwords, but just about everyone is concerned about where their next paycheck is coming from,” says Keith Newcomb, a financial advisor with Full Life Financial, LLC, Nashville, Tenn. It is one of the most basic things people plan for and most have been doing income planning de facto for a long time, he says.

“A lot of things turn into buzzwords for what people have been doing for a long time,” Newcomb adds.

Right now, many advisors are being told, “be an income planning specialist,” he notes. If that takes hold and advisors embrace it, “then we will hear more about it.”

Income planning “could be one of the phrases that product pushers embrace” and if the term is co-opted, “then it could be dangerous,” he cautions. “When ideas take hold, it seems like vendors latch onto them.”

If advisors are going to offer income planning for clients, they can go one step further and offer full financial planning, Newcomb continues.

Deborah Maloy, of Maloy Financial Planning, Wakefield, Mass., says income planning is “huge.”

Why is it suddenly so popular? People are living longer and realize that at least one of the three legs of the three-legged stool, Social Security benefits, may be knocked out from under, she explains. They can make money, but they don’t understand how to create income streams, she says. “They don’t have a clue yet.”

Current low interest rates are making some people acutely aware that the income stream they are earning from principal might not be sufficient for their needs, she says.

Most of Maloy’s clientele are teachers or state employees that have pensions. But some are in 401(k) plans and they are the people she is most concerned about. For instance, Maloy says, if a 401(k) spins off $10,000 to $15,000 and an individual can count on perhaps another $12,000 annually from Social Security, then that would leave a large shortfall if the person is expecting to have an $80,000-a-year cash flow.

So, Maloy says, “you have to begin the conversation.” Do they listen? “Everyone is on their own timetable. I can’t twist their arm. I can just present,” she responds.

Maloy adds that she tries to educate clients. Although they might not always understand concepts such as the time value of money, she says, they do understand a growing account balance. “They just want to see their account balance go up. It’s a matter of ‘show me the money.’”

A growing account may have to keep pace with longer life spans, she points out. “People think of themselves living to 75, but they might live to 90. They think of themselves, as well, but there is a chance that they might not be.”

Income planning should include “wellness planning” as well as planning for long term care, Maloy says. “Health is our number one financial resource,” she notes.

Jeff Broadhurst, president and senior financial advisor with Broadhurst Financial Advisors, Lansdale, Pa., says there is a need for income planning. “Most clients don’t have a clue of what their income will be like once they retire,” he explains.

Clients need help with income planning areas such as what percent of their assets they can withdraw regularly, he says.

And, they need the assurance that their financial plan will provide them with sufficient income even if there are uncertainties concerning other financial foundations such as the reliability of Social Security and defined benefit plans, he says.

Particularly with pre-boomers and boomers in their 40s, Social Security is being raised as a major concern, he adds. Some clients even are instructing him not to calculate Social Security when he is making assumptions to determine future income streams, Broadhurst notes.

One question that keeps surfacing is how to turn a portfolio into a monthly income stream, according to C. Zach Ivey, a certified financial planner with First Financial Group, Birmingham, Ala. “We are on the cusp of a whole new generation. Baby boomers are going to need this.”

The question may be raised by a client in the course of discussion, but it is one that needs to be raised, he asserts.

The size of the portfolio determines the conversation you will have, Ivey continues. The larger the portfolio, the more you have to talk about longevity and the appropriate withdrawal rates, he says. The smaller the portfolio, the more you have to talk about annuitization, Ivey continues.

In 1999, when clients were earning 20% on their portfolios and withdrawing 10%, income planning was less of an issue, says Ivey. However, when returns dropped in 2001, the income planning discussion became more important, he adds.

“It is a very important topic for many clients in a relatively low interest rate environment,” says Phillips Ruben, a certified financial planner with Vision Financial Planning, Inc., Boston.

And, because other income sources such as pensions may be less assured in the future, income planning will become more important, he says.

“It will be our greatest challenge going forward. People just are waking up to the fact” that they are going to need more income and income planning, he concludes.

This article originally appeared in the July 2005 issue of Income Planning, an online publication of National Underwriter Life & Health. You can subscribe to this monthly e-newsletter for free by going to

People realize that at least one of the three legs of the three-legged stool, Social Security benefits, may be knocked out from under


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