What Is an Income Floor in Retirement Planning?

Short Answer

An income floor in retirement is the portion of income made up of reliable cash flows that consistently cover essential living expenses.

What Is an Income Floor?

An income floor refers to dependable income sources that form the foundation of retirement income and are used to pay ongoing bills and expenses.

How an Income Floor Works

An income floor is created by identifying income that reliably deposits into a checking account and can be counted on regardless of market conditions.

How an Income Floor Is Used in Retirement

The income floor is used to support daily living needs so that retirees are not forced to rely on market performance for essential expenses.

When an Income Floor Is Important

An income floor is important when retirees want certainty that basic expenses are covered throughout retirement.

When an Income Floor May Already Be Sufficient

An income floor may already be sufficient when existing reliable income sources fully cover spending needs.

Common Misunderstandings About an Income Floor

A common misunderstanding is that an income floor refers to account balances rather than dependable income streams.

Key Considerations for an Income Floor

Key considerations include income reliability, consistency, and whether the income is sufficient to cover essential expenses.

Bottom Line

An income floor provides retirement stability by ensuring essential expenses are covered with reliable income rather than market-dependent withdrawals.

FAQ

What makes income part of an income floor?

‍Income that reliably deposits into a checking account and helps cover living expenses.

Is Social Security part of the income floor?

‍Yes. Social Security is a foundational income floor component.

Do pensions count toward an income floor?

‍Yes. Pensions provide reliable income and are part of the income floor.

Does an income floor depend on market performance?

‍No. An income floor is designed to reduce reliance on market outcomes.