Recently I attended a conference that had some amazing statistics when it comes to generating income.
In 1980 to generate $100,000 a year in interest income utilizing shorting term bonds you needed a total of $763, 395.
In 2016 to generate $100,000 a year in interest income in short-term bonds, you need a total of $13,888,901.
You need over 14X the amount of money to generate the same income! How about that in regards to inflation!
Life expectancies have also increased by 8 years during the same time period. The number of pensions has gone down significantly. And interest rates are going to go up this year….right? (We have only been talking about it every quarter for the past 5 years.) And when they do go up…bond prices will go down.
This is obviously creating a challenging environment to generate income. There is no one income solution out there that can solve all of these issues. There are lots of tools and options out there that can be considered when addressing an income plan from withdrawal rates, to different investment vehicles. Just like an investment portfolio invested in the market, your income plan needs to evolve over time changing as your life changes and the economy changes. It isn’t something that can be put up on a shelf.
When we put together an income plan, we always take into account core retirement expenses and discretionary expenses.
Core expenses include your home, healthcare, food, and transportation. Ideally, there is a core amount coming in each month that will cover all of these expenses. Our focus is on stabilizing this core income need for the long run.
Discretionary is for everything else. Vacations, home remodeling, etc. This are the like to haves…but are not essential for surviving. I wish there was a one size fits all solution…but there isn’t. An income solution in this economy requires monitoring and changing moving forward.