Paying Closer Attention To My Financial Statements

How Does Income Planning Differ From Other Kinds Of Financial Planning?

11 February 2022

Barb Morgan

If you're thinking about working with an income planning services firm to prepare for your future, you may be wondering how the process differs from other forms of financial planning. Let's look at what differentiates income planning from other approaches.

Focus on Monthly Income

Where income planning noticeably deviates from other systems is its focus on producing monthly income. When you meet with a planner, they will want to know how much income you'll need to live comfortably on a month-to-month basis. Generally, financial plans focus more on growth through investment and aim to achieve far-off goals like retirement or paying for a kid's college education.

Notably, this means income planning is often about the immediate or near future. For example, some retired people will assemble income plans to combine annuities and Social Security payments to meet their needs.

Some folks who have sizeable assets may also do income planning as a way to "live off the interest." This means they want their money to make enough additional money each month to provide for them right now. Beneficiaries of trusts may also want to follow similar plans.

Limited Concerns About Debts

Many types of financial planning focus on controlling debts and lowering your cost of borrowing. An income plan may account for the need to pay for a mortgage or car loan, but it won't focus on how to pay down your debts. To the extent an income plan incorporates concerns about debts, the goal is merely to faithfully pay them on time.

Tight Control of Risk

Fundamentally, an income planner wants to keep the client's risk as close to zero as possible. Obviously, no financial system is ever without risk. However, an income plan will usually avoid using tools like stocks or investment real estate because those assets can fluctuate too dramatically in value. If your income plan has you on track to have $5,000 a month to work with, for example, you don't want to endanger that with anything that could knock you off course.

Annuities are popular with income planners. High-yield bonds are also common choices. If a planner and client want to incorporate real estate, it will usually be in the form of rental properties that provide steady incomes.

Longevity

Quality income plans aim for longevity. This means your longevity because folks with higher-than-average standards of living tend to live longer. It also means the longevity of your income. You want to have a plan that will keep you ahead of inflation and on track to maintain your standard of living for decades to come.  

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