Investments

Retirement Cash Flow: What You Need to Know

By Chris Duderstadt

July 17, 2023

Retirement Cash Flow: What You Need to Know

Key Points – Retirement Cash Flow: What You Need to Know

  • The Income and Expense During Your Retirement Years
  • Creating a Spending Plan for Retirement
  • How Much Retirement Cash Flow Do You Need?
  • Short-Term, Intermediate, and Long-Term Buckets of Money
  • 6 Minutes to Read | 23 Minutes to Watch

The Ins and Outs of Retirement Cash Flow

Retirement is a significant milestone in life that many of us look forward to. It’s a time to relax, pursue passions, and enjoy the fruits of our labor. However, to make the most of your golden years, it’s crucial to have a solid understanding of retirement cash flow.

Today, Dean Barber and Logan DeGraeve will help us explore what retirement cash flow entails and why it’s important. We’ll discuss when to address your plan for cash flow in retirement, how to determine the amount you need for monthly cash flow, and the concept of short-term, intermediate, and long-term buckets of money. Continue reading along and listen to this episode of America’s Wealth Management Show to learn all about the ins and outs of retirement cash flow.

What is Retirement Cash Flow?

Retirement cash flow refers to the income and expenses that occur during your retirement years. It’s the money flowing in and out of your accounts, which allows you to cover your living expenses, maintain your desired lifestyle, and achieve your retirement goals. Understanding retirement cash flow is essential to ensure you have enough funds to sustain yourself throughout your retirement years.

“It’s the first time in your life where your resources need to start working for you to put it simply. You have your expenses and have this resource. How do you make this resource more work for you in the most tax efficient manner?” – Logan DeGraeve

Importance of Understanding Retirement Cash Flow

Having a clear understanding of retirement cash flow is vital for several reasons. First and foremost, it enables you to assess whether you are financially prepared for retirement. By knowing your sources of income and expenses, you can determine if your retirement savings, investments, and pension plans will be sufficient to sustain your desired lifestyle. We often like to call this a spending plan instead of a budget.

A solid grasp of retirement cash flow also helps you plan for unexpected expenses and emergencies. Medical bills, home repairs, or other unforeseen costs can arise during retirement, and having a well-managed cash flow plan will provide you with the necessary funds to handle these situations without jeopardizing your financial stability.

Additionally, retirement cash flow provides peace of mind. Knowing that you have a comprehensive financial plan in place allows you to enjoy your retirement years without constantly worrying about money. By properly managing your cash flow, you can create a sense of financial security and enjoy the fruits of your lifelong efforts.

When Should You Address Your Plan for Cash Flow in Retirement?

It’s never too early to start planning for retirement cash flow. The earlier you begin, the more time you have to save and make strategic financial decisions. Ideally, retirement cash flow planning should commence during your working years, allowing you to build a sufficient nest egg that can generate income streams to support you during retirement.

“To really understand your cash flow, you need to step into the future. The first part of retirement cash flow that should be addressed is what’s going to go out. What are you going to want to do? Define that lifestyle that you want to have and put a price tag on it. What’s it going to cost? That’s the outflow part of it.” – Dean Barber

Obviously, throughout your working years there are considerations, such as electing to go Roth or traditional in your 401(k) and IRA. Having a team of professionals working for you throughout the planning process to determine when, or if, it may be time to do a Roth conversion, for example, is key aspect of a plan that considers your financial wellbeing now and in the future.

“My job is to take your stuff—Social Security, pensions, investments—and figure out how I can make it work for you in the most tax efficient manner to accomplish what you want to do.” – Logan DeGraeve

Addressing your plan for cash flow in retirement early on provides you with the opportunity to make any necessary adjustments. By evaluating your current financial situation, setting realistic goals, and implementing a sound investment strategy, you can increase your chances of achieving the desired cash flow in retirement.

How Do You Determine the Amount You Need for Monthly Cash Flow?

Calculating the amount you need for monthly cash flow in retirement requires careful consideration of various factors. Start by assessing your current and expected expenses, including housing, health care, transportation, leisure activities, and any other costs specific to your lifestyle. Considering things like education expenses for your children or grandchildren, vacations, or second homes is an important thing to assess.

“You need to understand not just how much you’re spending, but what you’re spending money on. The things that you spend money on will inflate at a different rate. When you’re looking at your retirement cash flow—the outflow of what you’re spending—you need to take that and break it into different pieces of what you’re spending on and inflate those at different rates.” – Dean Barber

Next, evaluate your potential income sources, such as Social Security benefits, pensions, investments, and rental income. It’s crucial to have a realistic understanding of the income you can expect to receive during retirement.

Consider consulting with financial professionals to help you determine an appropriate monthly cash flow target. Our CFP® professionals, CPAs, and insurance and estate planning specialists take into account factors like inflation, life expectancy, and investment returns to provide you with a more accurate estimate.

By having a clear picture of your anticipated expenses and income, you can adjust your retirement savings strategy accordingly. It may involve increasing your savings rate, making additional contributions to retirement accounts, or exploring investment options that can generate income streams to supplement your other sources.

Logan, Dean, and Bud Kasper have spoken many times about clients making adjustments to their spending and saving in order to achieve a certain goal in retirement. Understanding your plan’s probability of success allows you to see the adjustments with clarity.

Short-Term, Intermediate, and Long-Term Buckets of Money

To manage retirement cash flow effectively, it’s beneficial to divide your savings and investments into short-term, intermediate, and long-term buckets of money.

The short-term bucket should consist of liquid assets, such as cash and low-risk investments, that can cover your immediate expenses and emergency needs. This bucket acts as a safety net, providing you with quick access to funds without having to liquidate long-term investments at unfavorable times.

The intermediate bucket should include investments with moderate risk and return potential. These assets can be accessed within a few years and serve as a bridge between short-term needs and long-term growth. Examples may include bonds, balanced mutual funds, or real estate investments with shorter-term objectives.

Lastly, the long-term bucket encompasses investments with higher growth potential, such as stocks and real estate. These assets are meant to grow over time, providing you with income and capital appreciation to sustain your retirement cash flow over the long haul.

Properly diversifying your investments across these buckets can help manage risk and ensure you have funds available for different time horizons and financial needs.

“Retirement cash flow is one of the key ingredients to making sure that you can lay your head on your pillow at night and you know what’s coming out and what’s coming in, that they equal each other, and that you’re good.” – Dean Barber

Securing a Comfortable Retirement Lifestyle

Retirement cash flow is a critical aspect of planning for a secure and fulfilling retirement. Understanding your income and expenses, determining the amount you need for monthly cash flow, and properly managing your savings and investments are key steps in ensuring a comfortable retirement lifestyle.

By addressing your plan for retirement cash flow early on and organizing your funds into short-term, intermediate, and long-term buckets, you can better navigate the financial challenges and enjoy the fruits of your labor during your golden years. Remember, consulting with a financial professional, or better yet a team of professionals, can provide valuable insights and guidance tailored to your specific circumstances, helping you build a robust retirement cash flow plan.

Working with a Team of Professionals That Works for You

If that sounds like something you’re looking for, connect with us by scheduling a conversation with a CFP® professional by clicking here. You can schedule a 20-minute “ask anything” session or complimentary consultation, which can be in person, virtually, or by phone.

If you don’t feel like you’re quite ready to meet with a CFP® professional to discuss retirement cash flow, we can still assist you in another way. If you want to live a comfortable lifestyle in retirement, you need a financial plan that can help give you more confidence, freedom, and time in retirement. That’s why we’re giving you access to our industry-leading financial planning tool so that you can begin building a plan that’s customized to your retirement needs, wants, and wishes. Get started on building your plan by clicking the “Start Planning” button below.

Retirement Cash Flow

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And if you have any questions that come up as you’re using our tool, we’re here to help. We can screen share with you while using our tool so that you understand the importance or retirement cash flow and comprehensive financial plan. We’re ready to build you a plan that’s unique to you.

Retirement Cash Flow | Watch Guide

00:00 – Introduction
01:17 – Importance of Understanding Retirement Cash Flow
02:25 – How Do You Determine the Amount You Need for Cash Flow?
07:24 – Top Three Mistakes Dean and Logan See with Cash Flow
12:29 – Short-Term, Intermediate, and Long-Term Buckets of Money
16:29 – When to Withdrawal from Which Account?
18:08 – Retiring Before 65: Healthcare and Taxes
20:23 – What We Learned Today

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Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.