Baseline Income Planning | A Retirement Income Strategy for 60 Year Old’s

Troy Sharpe: There’s nothing more secure in retirement than having a baseline of continuous income being deposited into your accounts every single month, as long as you and your spouse are alive. This is what we call baseline income planning, and I’m going to explain to you some of the foundational principles of how it works in this video.

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Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, Certified Financial Planner professional, and host of The Retirement Income Show. When we talk about retirement, first there is no retirement without income. We have to understand that money is nothing more than a resource. It’s a tool that we use to provide our family security, to make sure we have enough where we don’t have to worry about running out. We can maintain our standard of living. We have enough income later in life to pay for healthcare expenses, maybe someone to come to help us around the house if needed, long-term care, whatever that situation might be.

Income is the most important thing when it comes to retirement. There is a psychological transition that takes place. When we leave the workforce, our paychecks stop. We oftentimes lose our identity because we’ve done something for so long. We are leaders oftentimes in the workplace. We have responsibilities. We have people underneath us. All of this goes away the day you leave work.

You have to create an entire new chapter of your life, and you have to refine your purpose. You have to refine your identity. You have to find out who you are, but most importantly, when it comes to the money, we need to keep paychecks coming in. You’ve worked hard. You’ve saved. You’ve done all the right things over the years. How do we take that pot of money that you’ve saved, and now turn it into an income where if something happens to you, your family will be okay. You don’t pay more taxes than you have to. You know how much income to take, where to take it from, how much in stocks and bonds, mutual funds, et cetera, all of this, you have to decide on your own.

One of the strategies that we use that helps to bring security to the income picture is called baseline income planning, and it’s exactly what it sounds like. We want to create a plan where at some point in the future, we optimize social security, and we have additional sources of income coming in that creates a foundational level of income that we can never outlive, and it’s going to be there deposited into our accounts every single month.

This is a client that has been with us for a couple of years. She has about $1.7 million save for retirement. She was a teacher for some years, but she also worked in the private sector. She has a little social security check and also a little pension. It wasn’t enough income for her to feel secure for the rest of her life.

First, let me start here. The orange line here represents her spending goal, which is comprised of the fixed overhead type expenses plus what she anticipates spending, going out to eat, and traveling, donating, things of that nature. All we see here is the impact of inflation. If she wants to spend $75,000 after tax and retirement now, down the road because of inflation, it’s going to be 125, 130, 140, 150,000. That’s what this reflects is the spending goal and the impact of inflation.

Her social security check, fairly modest. A pension, fairly modest. All of this spending here gets her to about $30,000 of baseline income. Now social security is an increasing income source. Increasing income is good, so as guaranteed lifetime income. Both of these guaranteed lifetime incomes, but as you can see, based on her spending goals, there is a huge shortfall here. This means she would have to depend on the stock market going up consistently or some type of balanced portfolio that consistently earned 5%, 6%, 7% to ensure she doesn’t run out of money.

What we did is we took about $800,000. We split it up into two different deferred income annuities. Annuities are like cars. There are good ones out there. There are bad ones. There are ones that are designed to do specific things, such as safe growth. Others provide income. Today’s annuities are completely different from anything you’ve probably heard of or what you think about annuities.

The first thing here, she has access to her principal with the annuity. In today’s annuities, you don’t just make a deposit and it’s gone. You don’t have access to it. That’s not how it works. She has access to her principal in case of emergencies. If she passes away, the money goes to her children. They are not high fees. These annuities here have no annual fees whatsoever. They do provide a deferred income benefit. They’re designed for safe growth, but also to provide a lifetime income. We’ve not only created a baseline income here. We’ve created a staggered income plan as well.

The first annuity is an increasing income lifetime annuity. The second one provides a guaranteed growth rate for income purposes of 7%, and it’s designed to grow for up to 10 years before income is taken out. We use the combination of these two annuities because one, during the first 10 years, if the market goes down and her stocks lose value, guess what? She doesn’t touch theirs. We go into the safe annuities. We pull income out from there, give stocks the time to rebound.

Primarily, we use these two to stagger when she’s going to take income from them to create a guaranteed base level of income. As we can see here, if I take the goal line out, $100,000. For the majority of her retirement, this creates a baseline of about $100,000 a year of income. Whether the stock market goes up, the stock market goes down, whether the economy is good, the economy is bad. Life insurance companies that offer these types of guaranteed income strategies are the safest financial institutions in the world. They have a dollar-for-dollar legal reserve system. They’re audited by all 50 states. If they do business in all 50 states, the rating agencies and life insurance companies are not allowed to file bankruptcy.

It’s an extremely secure source of income. It creates a baseline of income for her, a few years into retirement of about $100,000 a year. One of them is an increasing income to go along with social security. She has a pension, and we use the 800,000 here to create this income stream. If she passes away, the money goes to her family. The insurance companies do not keep the money. This is a misnomer when it comes to a lot of annuities.

What this also allows us to do is the other $900,000. Now we can create a high-quality stock portfolio where she owns companies that have high cash flow, high profits, low debt, paid dividends, and during the first few years here where she has a shortfall still, we can try to live off dividends and interest to the greatest extent possible, make some withdrawals of growth, and all we have to do is get through these first few years, and she never really has to worry about running out of money because she has such a high level of baseline income guaranteed for as long as she lives.

This is one retirement income strategy. Obviously, we employ several for clients throughout the planning process, but this is designed for somebody who wants to know that, “Hey, the stock market goes up. The stock market goes down. My paychecks are going to be deposited into my account every single month during retirement, come heck or high water.” This is designed for somebody who wants the secure feeling of knowing that the income will continuously be there no matter if we’re in recession, things are going well, things are not.

In summary, a baseline income planning strategy is where we take some money. We put it into a stock portfolio for long-term growth, live off the dividends and interest in the meantime, but we take another pot of money, to create a baseline to secure income that goes with social security to ensure you always have a baseline of income deposited into your accounts no matter how long you and your spouse live. This creates security, helps ensure you don’t run out of money, and later in life when medical expenses and other things get to be a bit higher, there’s no greater feeling I’ve been told that knowing that you have a certain amount of money being deposited every month into that account, and that’s what brings peace of mind to many of our clients.

If you like this video, hit that thumbs up, hit the subscribe button, and please share this video with a friend or family member that may be reluctant to put money into the market, or they’re scared, they’re uncertain. They don’t know how they can generate income in retirement. There are a lot of different strategies. This is just one example that we use for clients. Everyone’s situation is unique. We’ve sat with thousands of families over the years. Something needs to be custom made for you in your particular situation, but reach out to us if you want something like this design, if you have a question, otherwise, please share this video so we can help more people stay more connected to their money.

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