In Retirement Cash (Flow) Is King—Part 2 of 4

The Elements of Retirement Cash Flow.

In the first part of this series I discussed the idea of shifting your mindset on your financial picture in retirement from thinking you need a certain amount of money you have saved over the years as the measure of a successful retirement, but instead to think about how that savings, along with your income from all other sources, work together for you on this journey. https://www.capegazette.com/affiliate-post/retirement-cash-flow-king-pa…

In other words, moving from the idea of whether or not you have “enough” money in your investments, retirement accounts, and bank accounts for a successful retirement—to figuring out what those funds can do for you.

This is the essence of looking at retirement success (at least from a financial standpoint) from a cash flow perspective. It’s not how much you have salted away, but how much income do you need for your day-to-day and other expenses, including fun ones, compared to how much income you have coming in.

Put more simply, the three critical elements of this equation are:

1.     How much are your anticipated annual expenses?;

2.    How much do you expect to receive from your guaranteed income sources in retirement each year?; and

3.    What is the amount you will need, if anything, from your savings each year to cover the difference?

Or even more simply: Expenses – Income = Surplus or Deficit

While this formula may look pretty simple and straightforward, in my experience working with many clients planning for their retirement years, they have a very difficult time getting started because they need to figure out their current expenses, which they may not have done in a while. They need to get that part done before they can even begin thinking ahead to future expenses. This can be a challenging exercise for you, but going through this process really pays dividends in the long run.

There are two basic types of expenses in retirement, fixed and variable. Examples of fixed expenses include mortgage or rent payments, utility bills, tax payments, insurance premiums, auto and other loan payments, and subscription fees for cable or streaming services. These generally don’t change much, if at all, on a monthly basis.

Examples of variable expenses include the cost of groceries, dining out, entertainment, transportation, health and personal care, clothing and accessories, and travel, among other things.

But within this category of variable expenses there are two subsets, discretionary and non-discretionary expenses. Another way to describe these are optional vs. essential expenses. If your spending plan (I don’t like to use the B word—Budget!) runs short in a particular month or year, you would look at belt tightening on the discretionary side of variable expenses. You don’t stop buying groceries so you can fund your hobbies as an example. When the spending plan improves you can restart spending on these discretionary things again.

I mentioned that many, but not all, of our clients find this expense review to be a challenge, but almost always see the value in the process when they are done. There are often some surprises found that can lead to adjustments in their spending plan, and sometimes dramatic changes.

We provide our clients with a tool to go through this part of the process to make it easier. If you would like this worksheet, please reach out to me using the email or phone number below.

So that is the first stage in the retirement cash flow process—determining what you think you will need on a monthly or annual basis for your fixed, variable, discretionary and non-discretionary expenses. In the next part of this series I will discuss the ways to pay for these expenses – the income component of the cash flow equation.

While you missed us at the recent Home Show and the Seminar on retirement success held on September 23rd, you can still learn more about what retirement success means to you with a no-cost, no-obligation in-person or virtual meeting to discuss your personal financial situation. You can reach George Reilly by calling 302-313-6644, or emailing Reilly@MARPS401k.com. The Coastal Delaware office of MidAtlantic Wealth Partners is conveniently located at 2400 Coastal Highway in Dewey Beach where we have our own parking lot.

Note: This article is for educational purposes only and does not offer any investment, tax, or other planning advice, nor does it create any advisor-client relationship with a reader of this article.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. MidAtlantic Wealth Partners is not affiliated with Kestra IS or Kestra AS.

This article is published for residents of the United States only. Registered Representatives of Kestra Investment Services, LLC and Investment Advisor Representatives of Kestra Advisory Services, LLC, may only conduct business with residents of the states and jurisdictions in which they are properly registered. Neither Kestra IS or Kestra AS provides legal or tax advice. For additional information, please contact our Compliance department at 844-5-KESTRA (844-553-7872)