Which Income Distribution Strategy is Right for You?
Like many important questions in life, there’s always lots of opinions. Just look in the diet section of a Barnes & Noble on what’s the best way to eat…lots of books with lots of opinions. Want to know the right way to exercise? Again, lots of opinions. The best strategy for taking income from your savings and investments for retirement? Again, lots of opinions. Which makes making an informed decision difficult at best. Which one is right?
We suggest you don’t blindly listen to friends, family, co-workers, neighbors, media hype, your employer, insurance or investment bigots. They probably haven’t done the research, the data-backed analysis and the work to properly guide you. They are also more than likely biased toward an approach, especially investment and insurance advisors.
The right income distribution strategy for you depends on many different factors and it’s different for everyone. When developing an income distribution strategy, it’s important to understand that there’s three different strategies employed in the industry today and each one is offered by different types of advisors. They span the spectrum from investment only, to insurance only, to a hybrid model which may offer a beneficial balance of both. The right approach for you comes down to the data and your situation.
Income Distribution Plan Strategies:
- Investment-only approach with traditional asset allocation (stocks and bonds). In this approach, your money will grow in a stock and bond portfolio, and when you’re ready to start taking income from your portfolio, a systematic withdrawal income plan (SWIP) provides your monthly income. This approach is typically offered by registered investment advisors such as Vanguard, Fidelity and others.
- Insurance-only approach with annuities (variable, fixed and Fixed Index Annuities). In this approach, money will be placed in an annuity that offers a guaranteed lifetime income benefit that is payable for the rest of the retiree’s life. A Guaranteed Minimum Income Benefits Rider (GMIB) or Single Premium Immediate Annuity (SPIA) will be utilized to provide this guaranteed income stream. Insurance agents offer this approach.
- Hybrid income distribution strategy (global stocks, structured investments and annuities). This approach attempts to offer an unbiased, middle of the road or balanced solution combining the benefits of both the Investment only and Insurance only approaches. Integrating the growth potential of the “investment-only” approach with the safety of the “insurance-only” approach typically offers retirees the best potential outcome that cannot be offered by a single-faceted approach.
Finding Balanced Advice
When trying to figure out your income distribution plan, it’s prudent to find an advisor who can consider and offer all three approaches. The danger in working with an investment-only advisor, such as a Fidelity, is that they will only fit you into an investment-based approach (without considering an insurance-only or a hybrid strategy). The same goes for an insurance agent who will try to fit you into a 100% annuity strategy. Both camps want to try and force you into the only solution they offer.
We believe you should work with an advisor who is licensed in BOTH insurance and investments, and one that has years of experience with both. This means that he/she can analyze (and can implement) any one of the three approaches, based on what’s BEST FOR YOU vs. force fitting a biased offering. He/she should build three different models based on the above strategies and consider which one provides the most efficient and sustainable income for you. We like to consider this “responsible and reliable” income distribution planning. As you prepare for retirement, we suggest you don’t settle for anything less.
Income Distribution Planning is Just the Start…
While income distribution planning is your number one priority to get right, the right advisor will also offer “multi-discipline strategies” to incorporate tax planning, risk management (long term care, etc.), home equity and estate planning. All these disciplines need to be incorporated and integrated into a cohesive retirement plan you not only understand, but have 100% confidence in. With every one of the advisors in our network this full circle, responsible and unbiased retirement plan creation and implementation is a core value to you.
An investment-only advisor or an insurance agent does not consider or offer these other disciplines, leaving major gaps (and missed efficiency opportunities) in your retirement plan. According to Dr. Wade Pfau, retirement researcher, “Most advisors concentrate solely on managing investments. They don’t incorporate all the intricate retirement strategies that must be utilized to dramatically increase the probability of a retiree’s success.”
Retirement Power Hours wants to be the conduit between you and the retirement advisor who can increase the probability of your success. We are 100% committed to helping you get there, without any biases.
Education -> Plan Development -> Implementation
All Retirement Power Hours advisors offer you a 3-pronged process that begins with retirement education, followed by plan development and then plan implementation. It’s imperative that you not only understand your plan, but also have 100% confidence in it. At Retirement Power Hours, building a fully integrated, unbiased and objective retirement plan designed around you and your goals is our network’s core value.
Your Retirement Advocate
Our team of RetireMentors and network retirement advisors utilize an unbiased approach and truly act as your retirement advocate to help build a strategy that is efficient and sustainable for life. Making educated and informed decisions is paramount to your retirement success and something we take very seriously. Contact us today to chat about your situation and to get connected with a retirement advisor.
Request a Retirement Efficiency Assessment to see the impact of various income distribution strategies