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 covers your essential expenses in retirement — housing, food, healthcare, insurance, and utilities. By securing these basic needs with guaranteed income sources, you free your remaining assets to pursue growth without the anxiety of market volatility affecting your daily life.
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.
- 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 are profound. You no longer need to check your portfolio during market downturns. 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.
Want to explore how an income floor strategy could work for your retirement? Schedule a consultation to discuss your specific situation.