Lifetime Income Planning

Lifetime Income Planning

"Imagine living longer than you ever thought possible."

Retirees face multiple financial obstacles —

Living Longer:

Imagine living longer than you ever thought you would. A man born in 1950 was expected to live to age 65. However, longevity increases each year. In 2005, a man age 65 has a life expectancy of age 82, and a 75-year old has a life expectancy of age 85. Your retirement assets may need to last longer than you had originally planned. (Source: Center for Disease Control and Prevention.)

Income Sources:

Americans' today are faced with a greater burden when it comes to providing retirement income. Traditional pension plans are no longer available to most workers. Social Security benefits are changing to accommodate the growing number of baby boomers. The long-term financial impact is unknown.


Every year, everything you need to buy may cost more. Inflation has a significant impact on your assets at retirement, requiring your income to increase each year in order to maintain your standard of living.

Emotional Risks:

Everyone is emotionally hard-wired when it comes to investing. Without a plan for investing and distributing assets, a fearful investor may become too conservative. This in turn jeopardizes the ability to keep pace with inflation and has a negative impact. On the other hand, investor's who feel they need more assets to maintain a retirement lifestyle may become too aggressive. The results can be financially devastating.

Market Volatility:

During retirement when, you begin taking distributions, the order in which your rates of return are realized have a greater affect on your ability to sustain a lifetime income. Investors who begin withdrawals during negative years will have different results than investors who begin during positive years.

A Solution:

Investors need a solution that will help increase the probability of providing an income that will last throughout their lives. The solution must address the following goals:

  • Deliver a stream of income over a period of years that will keep pace with inflation.
  • Implement a strategy that offers the potential to reach long-term investment goals.
  • Help preserve principal to either offset increased life expectancy or provide a legacy.
  • Reduce risk based on an investment time-frame.
  • Manage the emotional side of investing and the impact it has on reaching financial goals.
  • A strategy designed to moderate the risk of fluctuating returns.

Now there is a way . . . Lifetime Income Investment Planning

Segmenting assets into separate phases or time horizons is the backdrop of Lifetime Income Investment Planning. Each income producing phase is invested based on a specific group of factors and criteria. The goal is to provide an income distribution level that will keep pace with inflation and will continue throughout your retirement. This strategy has the potential to increase the income you will receive throughout your lifetime.

By varying the risk and investment time-frame for each phase, you can feel confident that a plan has been structured to help manage the emotional side of investing while still combating potential pitfalls like inflation. This will help protect your short-term income and keep your long-term investments on target for the future. The above illustration depicts a sample retirement allocation distributed across the 6 income phases using a lifetime income planning scenario.

Asset Distribution:

Phase 1 typically receives the highest allocation of your assets as the need for income is immediate. The allocation of assets between the remaining phases decreases for each phase from 2 through 6. When distributions begin, assets are pulled in order from each phase.

Risk Allocation:

The risk level increases progressively for each of the phases. Phase 1 has the lowest level of risk as the assets allocated to this segment will be used first. These assets are invested in low volatility vehicles such as bonds, CD ladders, money markets, fixed annuities, etc. With each phase, the risk level increases until reaching phases 5 and 6, which will be used 20 plus years into the future. It makes sense that the assets invested for the longest time-frame can withstand a higher level of risk.

Target Returns:

Each phase has a target return goal. These returns are not guaranteed. Theymerely reflect the goal that must be met to make the income distribution plan viable. It is important for you and your advisor to monitor each phase of the distribution plan. A phase that has met or exceeded the target return may be adjusted to build-up another phase or left to continue to grow. Changes may need to be made if there is a phase that is not keeping pace with the target goal.

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Investing involves risks. Stock and bond values fluctuate in price so that the value of an investment can go up or down depending on market conditions. Stock prices may fluctuate due to stock market volatility and market cycles, as well as circumstances specific to a company. Fixed income investing is subject to interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. Investments in high-yield bonds carry increased credit risk due to the low credit rating of the issuing company. Investments in foreign markets entail special risks such as currency fluctuations, political developments, economic and market instability. Investing in emerging markets involve heightened risks related to the same factors, in addition to those associated with these markets' smaller size and lesser liquidity. Long/short investment strategies utilize short selling, which involves selling a security not owned in anticipation that the security's price will decline. This strategy could result in losses if the value of the securities held long decrease and the value of the securities sold short increase.

Investments in mortgage-backed bonds, such as FNMA (Fannie Mae) and GNMA (Ginnie Mae) are also subject to "pre-payment" risk, which is the chance that during periods of falling interest rates, homeowners will refinance their mortgages before their maturity dates, resulting in prepayment of mortgage securities held by the fund. The fund would then lose potential price appreciation and would be forced to reinvest the unanticipated proceeds at lower interest rates, resulting in a decline in the fund's income.

The principal value of inflation-adjusted bonds are linked to the Consumer Price Index (CPI) and adjusted every six months to reflect the effects of inflation. If the CPI inches up 2.5% over the course of the year, the principal value of a the bond is adjusted upward by 2.5% and the fixed rate of interest is applied to the inflation-adjusted principal. However, if deflation should occur, your principal would go down the same percentage. At maturity the owner is paid at least the original face value. This protects you from deflation from issuance through maturity, though not from price fluctuations prior to maturity

Annuities are long-term investments designed for retirement purposes. Withdrawals of taxable amounts are subject to income tax and, if taken prior to age 59 1/2, a 10% federal tax penalty may apply. Early withdrawals may be subject to withdrawal charges. Optional riders are available at an additional cost. All guarantees are based on the claims paying ability of the insurer. An annuity is a tax-deferred investment. Holding an annuity in an IRA or other qualified account offers no additional tax benefit. Therefore, an annuity should be used to fund an IRA or qualified plan for annuity features other than tax deferral.

If a fixed indexed annuity is terminated prior to the end of the surrender period, there is a possibility of loss of principal. Guaranteed account values apply only if the annuity is held to term. Caps, spreads, and or participation rates may change annually. The decision to purchase income annuities to fund your retirement needs now, or in the future, may change based on your review of your investment strategy, the return of your investments, and your individual needs. Your income annuity purchase may be irrevocable after the initial free-look period. You should consult your tax and financial advisors when purchasing or selling any investment.

Single Premium Immediate Annuity contracts cannot be surrendered once annuitized.

Structured products typically pay an interest or coupon rate above prevailing market rates and limit upside participation in the referenced asset if principal protection is offered or if the security pays an above-market interest rate. Risks may include loss of principal and the possibility that at expiration the investor will own the referenced asset at a depressed price. Other factors that may affect the investment value of the structured product include; interest rates, volatility of the underlying asset, liquidity and time remaining until maturity. Structured investments are generally backed by the issuing firm which may or may not maintain a secondary market.

Investments in Real Estate Investment Trusts (REITs) and REIT funds are subject to the inherent risks of direct investment in real estate such as price fluctuation, liquidity, and concentration risks. Special risks associated with investing in real estate also include the possibility of declining real estate values, the possible lack of availability of mortgage funds, and changes in interest rates.

Precious metals are subject to unique risks and costs, such as cost associated with the storage of the physical commodity. As many precious metals are designed as a counter to inflation, they are likely to perform poorly in advancing markets. Precious metals are also subject to illiquidity risks as there may be no secondary markets to buy and sell the commodities. Additionally, the commodities/precious metals markets have historically been very volatile as precious metals are subject to greater fluctuations in price and as such are not suitable for all investors.

An investment in managed futures involves a high degree of risk, is speculative and volatile. An investor could lose all or a substantial part of his or her investment. There is no guarantee that an investment of this type will achieve its objectives. Managed futures funds' high fees and expenses offset trading profits and reduce returns. Managed futures investments involve the use of significant leverage that may increase the risk of investment loss. The interests of investors in managed futures funds may conflict with your own. Managed futures are not subject to the same regulatory requirements as mutual funds. An investment in managed futures funds is illiquid. There is no secondary market for managed futures funds, and there are restrictions on transfer of managed futures funds. A substantial portion of the trades executed with respect to managed futures investments may take place on foreign exchanges.

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