Retirement income planning has evolved significantly over the past decade. The traditional approach of withdrawing from a portfolio at a fixed rate is giving way to more sophisticated strategies that separate guaranteed income from growth assets.
What Is an Income Floor?
An income floor is the foundation of guaranteed income that is designed to cover your essential expenses in retirement: housing, food, healthcare, insurance, and utilities. By covering these basic needs with guaranteed income sources, you can give your remaining assets room to pursue growth with less pressure to sell during market downturns.
Sources of Guaranteed Income
Several financial tools can contribute to your income floor:
- Social Security: The bedrock of most retirement income plans. Timing your claim correctly can significantly impact your lifetime benefits.
- Pensions: If available, these provide predictable monthly income for life.
- Fixed Annuities: Can be structured to provide guaranteed income streams that complement other sources, backed by the claims-paying ability of the issuing insurer.
- Bond Ladders: Treasury bonds or high-quality corporate bonds maturing at specific intervals provide predictable cash flows.
The Freedom of a Solid Floor
When your essential expenses are covered by guaranteed income, the psychological benefits can be significant. Market downturns may feel less urgent. Your growth assets — equities, real estate, alternative investments — can remain invested through volatility because you don't depend on them for daily living expenses.
Building Your Floor
The first step is calculating your essential monthly expenses. Then, inventory your existing guaranteed income sources (Social Security, any pensions). The gap between essential expenses and guaranteed income is what needs to be filled through strategic planning.
At Prospera, we specialize in constructing these income floors as part of our comprehensive retirement planning process. Every client's floor looks different because every retirement is unique.
Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are not bank deposits, are not FDIC insured, and have surrender charges and limited liquidity in early years. Prospera Financial offers insurance products. This content is for educational purposes only and is not tax or legal advice.
Want to explore how an income floor strategy could work for your retirement? Schedule a consultation to discuss your specific situation.