Income Investment Planning

Your retirement income investment plan starts now, right now, no matter how old or well heeled you happen to be.

Step One is to understand what a retirement plan is, and to identify the three large numbers you need to keep track of while you are developing your stash. With these three totals on your spreadsheet, it's much easier to develop long-range retirement income goals that make personal sense. A retirement plan is an income production plan. Guaranteed retirement income - projected expenses = the gap. No gap, add parents and children to the expense number. There's always a gap.

Employer provided pension plans, Social Security, and (always much too expensive) fixed annuity contracts, are retirement income providers. They are monthly income machines that you have paid dearly for but which may not be adequate to cover your retirement expenses--- most of us will need more income than our guaranteed benefits will provide.

And we need to develop these additional income sources while we are still earning some kind of income. The retirement plan is the investment process you employ to eliminate the gap between your projected guaranteed income and a conservative estimate of your retirement expenses. The sooner and smarter you invest before retirement, the easier the transition from full employment to full vacation will be. Smart investing involves separating your security selections by purpose, and monitoring their performance in the same way. You're never to young to start developing the income side of the portfolio.

Once you start to draw income at retirement, it is much more difficult to invest effectively and unemotionally. Since your income will need to remain secure and constant through several economic, market, and IRE (interest rate expectation) cycles, you really need to develop appropriate portfolio market value expectations if your program is to survive. You cannot afford to take your eye off the income ball, because income is the only thing you can spend without depleting the productive value of the assets in your investment portfolio.

Planning & Budgeting is Critical to Becoming Financially Free

can still remember my first lecture in Management Accounting. The lecturer was introducing us to the concept of budgeting and at the end he made a little joke, which went something like this: "If your budget has turned out exactly right, you have either had an amazing stroke of luck or got it wrong!" Of course, what he meant was: budgets are not meant to be accurate. They are there as a guide - an important, essential guide that should act as both a planning and control mechanism.

I try to avoid the word budget with my new clients but I would like to introduce you to the real meaning of budgeting. Forget about the concept of restriction and restraint often associated with household budgets and start thinking about your finances in the same way that good businesses do.

The glue that holds all successful business practices together is the master budget. It ties in all facets of the business - marketing, selling, financing, research and development, and personnel management. Without a good master budget that incorporates all activities of a business, an organisation will end up floundering. And a floundering business is rarely profitable.

The budget provides the cohesion between the differing objectives of diverse parts of the business and creates a unified goal for the total organisation to work towards. It enhances motivation, delegates responsibility and provides important feedback on the progress of individuals and the organisation as a whole. Not bad, for a simple system that we all thought someone installed to punish us for our mistakes.