If you’re headed into retirement, you may be thinking about the prospect of leaving behind the predictability of a steady paycheck—and that can feel a little scary. On the other hand, one of the positives that most of us are looking forward to in retirement is having more time at our disposal to do the things we want to do, when we want to do them. So, how can you balance the freedom to budget your time the way you want with the absence of that regular income? The answer lies in cash flow planning.
The process of creating a cash flow plan is similar to budgeting during your working years. Now, many of us may have unpleasant memories of budgeting, likely left over from the days when we were getting started, money was short, and the household budget was a constant source of guilt. The budget made sure we didn’t forget that resources were limited and might even feel like a disapproving parent, scowling at us for any indulgence. But when used properly, it’s actually a tool for giving you more control, for relieving stress and worry. As long as you’ve accurately calculated what’s coming in each month and what’s going out, your budget can allow you to relax and enjoy the ride. So, instead of thinking of your retirement budget as a killjoy, think of it more as a dependable guide, telling you you’re still on the right track.
Creating a cash flow plan is a relatively simple process. Here are the basic steps:
- Estimate your income from fixed sources. Fixed income sources are steady payments that you can expect consistently, such as income from Social Security, pensions, annuities, and other stable sources.
- Estimate your expected spending. Be sure to account for your “needs,” such as housing, transportation, and groceries, as well as your “wants,” such as entertainment, travel, and shopping.
- Identify expenses that are likely to change in retirement. Some expenses, such as gasoline, may be less, while others, like healthcare costs, may be more. Consider any lifestyle changes as well, such as a bigger allocation to travel.
- Factor in your “nest egg.” For many retirees, their fixed income may not cover their expenses, so it may be necessary to utilize their savings and investments to supplement their income. This is where a professional fiduciary financial planner can be a valuable assistant. Your advisor can help you project how much income you can reasonably expect your portfolio to generate and how much of it will be needed, in addition to your fixed income, to pay for the retirement lifestyle you want.
Keep in mind that retirement can be unpredictable, with some years requiring more spending than others. For example, you might spend more in your early retirement years traveling or enjoying hobbies, while your spending may slow down as you get older. It’s important to create a flexible budget that can adapt to these changes. Be sure to plan for larger purchases or events, like home repairs, new vehicles, or family milestones (such as weddings or graduations). It’s also essential to have an emergency fund set aside in case of unexpected financial setbacks.
Cash flow planning in retirement isn’t just about budgeting—it’s about taking control of your financial future to help support the lifestyle you’ve always dreamed of. By evaluating your income, expenses, and withdrawal strategies, you’ll be able to create a sustainable plan that gives you peace of mind and freedom in your retirement years. If you haven’t yet started planning your retirement cash flow, now is the perfect time to begin. Whether you’re just a few years away from retiring or you’re already retired, consulting with a financial planner can help you create a plan tailored to your unique needs and goals.
JFS Wealth Advisors believes that retirement should be a time of satisfaction and enjoyment, not stress and worry. Our fiduciary guidance can help you make the best use of your resources. To learn more about our retirement planning services, please visit our website.
