A recent AARP article addresses the concern that
80 percent of retirees do not feel confident about maintaining
financial security throughout their remaining lifetime. Of that
80 percent, 61 percent have a greater fear of outliving their
money than death. These concerns and feelings of uneasiness
stress the importance of developing/utilizing a solid spend-down plan for retirement. Therefore, ideal-LIVING spoke
with financial advisors Lawrence Tundidor, AAMS, AWMA;
Daniel Weiss CRPC of Tundidor & Weiss Investment Group;
and Tom Driscoll CFP, CLU, CHFC of Voya Financial Advisors (rebranded from ING Financial Partners) to help clarify
questions that pre-retirees and retirees may have regarding
the development of a spend-down plan.
What does a solid spend-down plan look like?
A plan is based on one’s specific situation. Each individual
has a different vision of their ideal retirement, which results
in different spending needs and wants. In addition, there are
various saving vehicles that one may have utilized such as a
pension, 401k/403b, personal savings or real estate. In start-
ing a plan, it is pertinent to consider guaranteed income
first such as social security, pension or an annuity to help
aid in determining the income gap that may be present.
Income gap analysis is based on one’s needs and wants.
In general, needs include housing, food and medical expenses, while wants are specific to an individual but may
include yearly vacations, a new car or a second home. Once
sources of guaranteed income are taken into consideration
and the income gap is established, the focus becomes how
to draw-down the remaining assets to cover the income gap
initially and in the future when accounting for higher inflation and rising health care costs. When considering inflation
and rising costs, many individuals that may have sources of
guaranteed income, such as a pension, do not receive a cost-of-living-adjustment. This becomes a long-term issue, since
an individual’s gap can become larger because his or her income is not increasing to account for higher living costs. For
example, an individual with a $4,000 a month pension at
age 60 has approximately the equivalent of $2,000 a month
of purchasing power at age 80.
While a spend-down plan and income gap is specific to
the individual, which stresses the fact that obtaining qualified help from a financial professional or firm that focuses
on income strategies for retirement is pertinent, some individuals may decide to take on the challenge themselves.