Retirement Income Planning for Multiple Income Streams

Many retirees want a simple retirement plan, however, they have multiple avenues for funding their retirement: Social Security, 401(k)s, annuities, life insurance, and more. However, understanding the different types of retirement income and how they interact can be confusing for the average consumer.  Learn how to help clients determine which account to use and when in this month's FinPlan Friday conversation with Joe.

Income InSight  | FinPlan Friday Which Account When | Jan 2022

FinPlan Fridays

In our video blog series, FinPlan Fridays, Covisum® Founder and President Joe Elsasser, CFP®, offers his take on the issues financial advisors see every day. Joe is a practicing financial planner with a unique perspective on industry challenges. Join us on the first Friday of every month for FinPlan Fridays and get helpful tips to grow your financial planning practice. 


I'm Joe Elsasser, CFP®, Founder and President of Covisum®, and I'm also a practicing financial advisor. Welcome to another FinPlan Friday. Today's topic is which account, when? Our clients don't get to retirement with a nest egg, instead they arrive with a carton. Maybe you have Social Security, 401(k) dollars, IRA dollars, non-qualified savings in CDs or mutual funds,  annuities, or life insurance. Maybe you have Roth money. Ultimately as advisors, our job is to help a client decide which account to use at which point in retirement. In other words, which eggs to break for breakfast today, and which to save for tomorrow and later on throughout retirement. In order to do that, we have to be thinking about three things.

Three Considerations When Crafting Retirement Strategies with Multiple Income Streams

  1. What is the unique tax treatment of each of those different accounts? Each account type that I listed, or each holding even, has its own unique tax treatment. That's the first consideration–understand the tax treatment and the tax opportunities for each of those different accounts. Social Security ranks very high on that list, particularly for the middle income retiree, because it has such significant tax implications in the context of a plan that it can really make a huge impact on the overall efficiency of the retirement income plan. So, we typically start there and then build a tax-efficient portfolio around a strong Social Security decision. So, the first level is understanding the tax implications of each of the different accounts.

  2. Identifying the purpose for each of those different accounts. Now, one of the most common retirement income strategies right now is to delay Social Security out until age 70 and in that window between a client's retirement and when they commence claiming Social Security benefits at age 70, live off non-qualified money while doing Roth conversions. In other words, if the client has over saved into 401(k) or IRA accounts, they're eventually going to face a ticking time bomb in the form of required minimum distributions. Now, if those eventual required minimum distributions are going to be far more than they need to live the lifestyle they wanna live, then it really makes a lot of sense to accelerate some of the withdrawals from the IRA sooner in retirement, in order to level brackets over the course of the retirement. Once I understand that that unique tax treatment of those different accounts is going to cause me a problem, then I might want to solve that problem and sooner. So, I'm going to do some Roth conversions.

    That brings us to the second point. What is the purpose of the account? If I'm doing Roth conversions, then I know that I might want part of the IRA I'm converting to be in aggressive holdings. We can't of course time when we're going to experience a down market, but when we're in those down markets, those can be great opportunities to convert assets to Roth. The other side of that is we might want to have some of our non-qualified money invested very conservatively because those are the dollars that we're going to be living off of.

  3. Once we've identified how we expect to use an account through the course of a retirement, then we can really think about how to maximize the investments held in that particular account. For example, if I know that the likelihood of using Roth dollars during a client's lifetime is very low and they want to leave money to their children, then I might want to invest those Roth dollars more aggressively than any of their other accounts. They have the longest time to recover and long-term growth that stock investments offer.

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That really covers the three levels that we're thinking about as we construct retirement income plans. First, what are the unique tax properties of each different account? Second, how will we use that account through the course of the retirement? And third, how can we align investments with that account and tax type to meet the client's goals most efficiently and produce the ideal retirement outcomes.Thank you so much for joining us for another FinPlan Friday, we look forward to seeing you next month.

Income InSight® Makes Crafting Retirement Strategies Easier

Covisum's financial planning platform, Income InSight , has the elements financial advisors need to create comprehensive retirement strategies: tax, income need, and Social Security. Drill down into the details and look at annual cash flows. Test your client’s retirement strategy against a down market, early death, or long-term care need. Determine which account to draw from, and when, and find key opportunities for converting to a Roth. 

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