Is income planning a way of life? And if it isn’t, should it be?
Financial advisors as well as insurance executives say that the need for income is a constant throughout different stages in a person’s life, and, consequently, income planning is a lifelong process.
However, they note that creating regular income in retirement is probably the most important phase of life in which income planning helps benefit a client.
Income planning “is an extension of what should be addressed throughout a person’s life,” says Craig Limoges, president of Limoges Investment Management, Vancouver, Wash.
Income planning can be as simple as a high school student determining, “What will I make with a college degree and what will I make without one?” he adds.
Limoges distinguishes between total income and disposable income (income left after all the bills are paid).
Choices made over disposable income can range from taking on debt, which diminishes future income planning streams, to saving for a child’s college education, which is a commitment to voluntary diminished income in the future, he says.
But income planning throughout life also needs to protect total income, continues Limoges. Consequently, disability income is an important aspect of income planning, he says.
Creating and protecting income is a lifelong process, says Matthew Gottfried, director of individual disability income, Berkshire Life, a unit of Guardian Life Insurance Company of America, New York. “There is a need to protect income while you are working. If you don’t, then you significantly impair your ability to have income in the future,” he cautions. “If you become disabled, then your retirement plans become disabled.”
Protecting an income plan with DI is just one piece of an ongoing effort to create and protect income throughout life, he continues.
A few carriers offer insurance that continues to make retirement contributions when a person becomes disabled and cannot work, he points out. One of them is Berkshire. Here, the retirement contribution includes both what the disabled insured contributed as well as any company match. The payments can continue up until age 65 to a non-qualified trust, and if the insured goes back to work, that amount can be still be accessed at retirement, he says.
“If you can protect income, you protect the ability to use that income. You protect income and everything wraps around that,” Gottfried says.
Building income early on is as important as protecting income, according to Norm Boone, a certified financial planner and president of Mosaic Financial Partners, San Francisco.