There are at least two schools of thought with regard to the basic principles involved in planning for retirement spending. The first, and most common, approach poses the problem as a seemingly simple determination of the retirement income needs of a retiree relative to pre retirement income. This is typically expressed as a “replacement rate,” in which a retiree targets a given fraction of his or her pre retirement income level as an amount adequate to sustain a desired lifestyle without working. Often, a particular level of income is given as a rule of thumb (e.g., 80% of pre retirement income). (more…)

Once the cash flows to be financed are determined, whether via a detailed version of the determination of planned expenditures or the simpler “rule of thumb approach,” the question of how each $1 of assets will be turned into an income flow must be addressed. How much income will each dollar generate, and for how long? This is the basic issue of longevity risk (the risk that a person will live either beyond, or not until, their “life expectancy”). This source of uncertainty presents perhaps the most significant challenge for cash flow planning in retirement. (more…)

One of the most important planning decisions you’ll make is how to best generate income for your retirement. Different sources of income have different characteristics and potentially different pension tax consequences. It’s very important to be wise in establishing and maintaining your post retirement cash flow. Here are the various types of income and their representative taxation: (more…)