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Do you have an income plan?

Your life savings becomes much more important to you when you lose your earned income.  Consequently, how you draw income from your life savings is crucial to long-term success. It is as critical as how you invest your life savings. Most retirees are drawing one or two major sources of income including Social Security. However, if you need additional income, it has to come from your life savings and that puts tremendous pressure on your nest egg.

Brogan Financial uses a two-bucket system for your retirement plan. The first is safe money you "live-on" and the second is risk money you "leave-alone." Money in the "leave-alone” bucket is invested for a minimum of five years, and you don’t draw income from this bucket.

With a proper balance of smart risk investments and safe money accounts, you should be able to maintain a certain withdrawal rate from your safe money bucket and not impact principal over time. You should also have the flexibility to increase distributions periodically to offset inflation.

Setting income amounts

While retirement is a time of life to be enjoyed, it is very important that you not draw too much from your life savings every year. The amount will vary based on your needs, the amount you have saved, and risk tolerance. However, the appropriate mix of investing and withdrawing is essential to maintain long-term financial support. Your risk tolerance plays heavily into the amount your financial plan will allocate each year.

Tax efficient income

It is important for you to recognize that if you draw income from the wrong place, it can have an adverse effect on your tax return. Most retirees have two types of money – 1. IRA’s, 401(k)’s, or other types of retirement account money. 2. The other type of money are funds not in a retirement account.

When you look at your retirement account balances, remember that you don't really own all that money because most, if not all of it, has never had income tax paid on it. So, once you pay taxes, you actually keep only a portion of it. How you get the money out of that account is what determines how much income or how much money you get to keep. Any dollar you take out of your retirement account is fully taxable.

Understanding the tax implications of taking money from various accounts is important when we assist you in structuring your income plan. It could impact your federal income tax, the Tennessee Hall tax, and taxes on Social Security income. Remember, money that shows up on your tax return could add to the taxes on your Social Security income.

Income in down markets

How you draw income when the market is down impacts long-term security. You do not want to draw monthly income from accounts going up and down in value; in bad markets, you will compound your losses.

Therefore, it is essential to have safe monies to draw from through difficult markets.  This takes us back to the two-bucket system Brogan Financial uses to formulate your unique retirement plan. The safe money you "live-on," and the risk money you "leave-alone."

Contact the Brogan Financial office at 865.862.6800 or at This e-mail address is being protected from spambots. You need JavaScript enabled to view it for an appointment about your retirement income.

Jim Brogan named the 2011 National Advisor of the Year.

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