Managing retirement cash flow requires budgetingPublished 12:05am Sunday, May 8, 2011
When retirement planning goes into reverse, shifting from accumulating assets to living off investment and other income, cash flow becomes critical.
The ultimate goal for most retirees is making sure their assets last as long as they live. And because of increasing longevity, managing cash flow is more critical than ever. A typical American electing to retire in his or her mid-60s may expect to live 20 or more years after retirement.
While many variables come into play depending on your income level, lifestyle and health considerations, there are a number of planning moves that can help retirees live within their means and make appropriate adjustments in response to changes in income and expenses.
Tools for the Task
If you are retired or about to retire, you will need to gather and organize key information before you can tackle the ongoing tasks of monitoring and managing your cash flow in retirement. The purpose is to give you a clear and complete picture of your current financial situation, as well as any significant changes you expect. Two sources will provide this information:
4An up-to-date net-worth statement, which provides a snapshot of your assets, debt and cash reserves.
4A monthly or annual budget, with itemized breakdowns of your income and expenses.
If you haven’t retired yet, it is a good idea to prepare a projected budget of your retirement income and expenses. Be sure to account for all expenses, including those that occur infrequently, such as insurance bills, college tuition and membership fees. They should be reflected in your monthly budget on a prorated basis. If you need assistance creating your net-worth statement and budget, you may want to consult a financial advisor, a book on the subject or resources that are available online.
Analyzing this information will reveal any major problems that you need to address, such as insufficient cash reserves for an emergency or an income shortfall compared with current or projected expenses. It may also point out areas for improvement. For example, you may be able to free up cash by reducing debt or eliminating nonessential expenses.
Plans and projections are always subject to change. Even with reasonable assumptions about investment returns, inflation and living costs in retirement, it is likely you will encounter numerous changes to your cash flow over time. Frequent monitoring of your income and expenses will detect changes that you can address in a timely fashion to prevent significant problems down the road. Experts often recommend a monthly review of your budget, as well as a comprehensive annual review of your financial situation and goals. While you can keep track of your situation with paper and pen, specialized software may make the task easier.
Key Smith is an associate with Natchez Wealth Management.