5 Needs of Money: Types of Income

5 Needs of Money: Types of Income

 

We touch on the 5 needs of money pretty regularly, but what we want to do is a deeper dive into each need to make sure you really understand what they are.

 

The first need we are going to talk about is income. While most people know that income is a steady source of money coming in, they usually don’t know the types of income needs. Here are a few of the more common income needs:

 

Guaranteed* Lifetime Income

In a recent poll by Transamerica Center for Retirement Studies, the #1 fear of retirees was outliving their money. The #2 fear was death. Since this is such a concern for people, how do they go about making sure that it doesn’t happen? The most common way people go about getting guaranteed lifetime income is through social security, pensions, and annuities.

 

Non-Guaranteed Lifetime Income

Some people are ok with flexible income, especially if it’s purely discretionary. The following are some of the common types of non-guaranteed income:

  • Interest off Certificate of Deposits (C.D.) or Bank Accounts
  • Dividends from investments
  • Sweeping returns off of investments
  • Rental Income
  • Business Earnings

 

Gap Income

Some people only need extra income for a certain period of time. A few examples of when someone would need gap income:

  • Income until you’re eligible for Social Security
  • Income to pay for a temporary bill like a mortgage or car loan
  • Income to pay for insurance premiums until medicare
  • Income to pay for children’s schooling/college

 

Long-Term Care

With the rapidly rising cost of assisted living, this has quickly become a large concern for many retirees. One of the quickest ways to wipe out life savings is to have to go into some sort of long-term care facility.

 

Required Minimum Distributions (RMD’s)

If you have qualified money (IRA, 401 plans, 403(b), Deferred Comp, etc.) then you have to begin taking qualified distributions when you turn 70 ½ years old. RMD’s are unique because they are a form of forced income, and if you do not satisfy your RMD’s then you’re taxed 50% on what you were supposed to take out. One of the most common things that my clients ask is, “What do I do with my RMD’s”, and my response is always “Anything you’d like, besides rolling them to a qualified plan.”

 

*Guarantees mentioned herein are backed by the claims-paying ability and financial strength of the issuer.