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Income Planning A Lifelong Process

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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.

Many wait until they are retired to decide where income will come from, says Boone, but the best way to guarantee income is to develop a lifetime strategy.

If 19-year-olds could think ahead to what they want retirement to be, then they could start saving for that, Boone adds.

He cites the story of twins–one saving from age 21-30 and then stopping while the other twin starts at age 30 and continues saving through retirement. Each contributes $2,000 annually to an IRA. The one who started earlier will still have more money–even though saving stopped at age 30, Boone says.

Harry Horn, president of Academy Financial, Baltimore, a financial planning firm affiliated with Lincoln Advisors, a unit of Lincoln Financial, Philadelphia, also references the twins’ story to make a point that income planning is a lifelong strategy. However, he does note that it becomes more important when associated with retirement planning because there is less time to rebound if a mistake is made.

Starting early makes it easier to rebound as well as to benefit from compounding, Horn points out.

He says the old adage “pay yourself first” applies to income planning. “Most Americans, even the affluent, save what is left over,” he says.

A lot of income planning is “habit and discipline,” he says. Unless you take control, “you are letting circumstances direct you.”

That habit should start early, and Horn says he encouraged his children to put some of their summer savings into Roth IRAs as a way to get them to start thinking about saving and income planning.

Heather Dzielak, senior vice president with the Retirement Income Security Venture Group of Lincoln Financial, Philadelphia, says that company believes “it is absolutely a lifelong process. We should start the day that we start work.”

Income planning incorporates both accumulation as well as protection, she says. Long term care risk, market risk and inflation are just a few of the things that income planning protection should incorporate, Dzielak says.

To address income planning as a holistic discipline, Lincoln Financial started the retirement income security venture in October 2006, she says. This new approach is “a reorganization and a rethinking” of the traditional idea of saving and protection, Dzielak explains, and it requires both “products and process.”

That includes training, an income planning curriculum and accreditation programs, Dzielak says. To take a fresh approach to lifelong income planning, she says, a research and development team is currently being built within her group and she is hiring a team to think about how income planning affects consumers throughout life.


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