What is the greatest concern people approaching retirement have? There is little doubt it is “After my salary stops, where will my income come from, and will it be enough?”

What is the most common concern for people already in retirement? The most likely answer is “Will my money run out before I pass on?”

These concerns highlight the importance of good retirement income planning. A well thought out retirement plan addresses both those questions and puts the retiree’s mind at ease.

There are many pieces of information required to prepare the ideal retirement income plan. The first is how much capital the person or couple have to fund their retirement?

This is calculated by adding the values of all their assets, excluding their home and personal use items, then deducting all debts or liabilities. That gives the amount of money available to generate income from.

The next question is their age. Older people can draw income from the same capital at a higher rate. What is their personal life expectancy? How healthy are they? How long did their parents and other family members live?

Do they want to leave money for their children on their death? Are they concerned if their investments run down slowly? People’s opinions on this vary greatly. Many say yes, they want to leave benefits for family, but some say no, the kids are wealthier than they are.

Some retirees want to spend more income early in their retirement when they are healthier and more active, and less later. That can be planned for. However aged care costs need to be planned for too.

A further important question is how conservative, or growth focused the retirees wish their investments to be. Cautious investments earn lower returns so the retiree may have to live on less income.

After gathering all this information financial planners can work out how much income the retiree can draw from their investments sustainably.

This calculation will be based on an assumed earning rate and income needs rising with inflation. It will show how long the money will last, and if, and when, it is likely to run out. 

Do these asset levels mean the retiree will qualify for a part or full Age Pension? If so, a combination of investment and pension income can give a comfortable total.

Some people may want higher spending levels. Annuities can boost their total income and qualify them for more age pension but may mean less money for the kids later.

Ongoing monitoring and review of the retirement income plan is also important, to make adjustments depending on how investment returns and inflation actually work out.