Have you ever thought about the true cost of income?
Too often, we simply take the current payout percentage and divide that into the required annual income to find a solution.
But, are we really helping the client understand the cost of generating income? Or, are we even doing the client justice by simplifying the solution with the hottest income rider?
In reality, clients need to consider many factors as they transition from asset accumulation to asset consumption for the rest of their lives.
As advisors, we must create a strategy that provides a minimum level of income the client will not outlive. So many of us stop after completing the simple calculation with an income rider. However, there are other considerations.
Planning to minimize the tax impact on income received has a collateral effect on other aspects of the income stream. For example, minimizing taxable income can assist with the taxation of Social Security through the compression of the modified adjusted gross income calculation.
Reducing taxation early in retirement may allow for bracket bumping with Roth conversions for qualified assets.
