floor plus upside

The “Floor plus Upside” Strategy of planning for retirement is a strategy espoused by Retirement Income Industry Association founder Francois Gadenne and it follows a very BASIC premise, but one that after seeing the worry in the faces of many middle Americans, makes a lot of sense:

First build a floor, and then create upside

What does “floor plus upside” mean? It means that, before investing in any kind of risky portfolio, it makes sense to build a “floor” of safe cash flow streams for the retirement years. How?

First, define your baseline living expenses, and then project what that will be during your retirement years. This exercise will yield a baseline income needed for retirement. Then outline any guaranteed income sources you expect, such as social security and/or a pension. Determine if you guaranteed income exceeds or falls short of your baseline living expenses.

If your guaranteed income exceeds your expenses, then you have more flexibility and can take more risks with your investments. If your income falls short, then you will supplement your income with your investments using stable tactics.

Creating a Stable Floor

To create a stable cash flow in the future, one could consider using government bonds that mature in the year needed, or for a higher return without the government guarantee, one could consider an annuity. Once this baseline is met, the planning can then focus on using residual assets for growth and possible lifestyle enhancement.

In my experience, I have found that this approach tends to give comfort to people when they know they can secure an income stream in some way or another.

Read Chris Grande‘s answer to As a recent retiree, should I put most of money for investment in an index fund or use a financial advisor who takes 1 percent? on Quora

Learn More About Floor Plus Upside

For more great information that can help you succeed financially, try our Articles page for stories that can educate and inform. If you’d like to understand this concept more, consider a phone meeting with Chris Grande, Walnut Hill Advisors principal. Click here to learn more about working with Chris:

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