Retirement planning has a simple goal: You want to make certain that you have sufficient funds to maintain your desired lifestyle from the day you retire through the end of your life. One way to look at retirement planning, then, is in terms of cash flow; retirement planning is really about ensuring that you have enough income to keep up with expenses at any given moment.
Income and Expenses
As such, an important retirement planning activity is cash flow analysis. This involves collecting all available information about the income you expect during your retirement—whether that’s your Social Security money, income from a part-time job, or pensions. The next step is to consider the timing: When will you receive this money, and when should you receive it to maximize the benefit? For instance, is it wiser for you to start taking Social Security payments when you turn 66, or should you try to delay those payments for a few years?
Once you have a good sense of your income, the next step is to tabulate your yearly expenses. This can be a tough job simply because you need to include everything. Approximating your grocery bills and auto insurance premiums is easy; factoring in golf club memberships, travel, gifts for your grandkids, and charitable donations can take some extra brainpower.
Also make sure you account for any big expenses you’re planning. For example, do you intend to buy a new sports car after you retire, or to take a big around-the-world trip? Those are high-cost items to include in your cash flow planning!
Calculation and Guesswork
Some of these figures you can nail down pretty easily, but note that some of this is going to involve some guesswork. And you also need to be ready for the unexpected—for example, a medical diagnosis that leads to some unexpected costs, or the realization that you want to pick up some part-time work in retirement. That’s just to say that you need to be as precise as you can be in your cash flow planning but also leave some room for updates and revisions.
Even if your cash flow analysis isn’t foolproof, it can provide you with a helpful snapshot of what you’ll be bringing in, what you’ll be spending, and any discrepancies between the two. Working with a financial planner, you can ensure that your retirement savings and retirement budgeting are working harmoniously to provide you with true financial security.
If you’re ready to talk with a financial planner about cash flow analysis, or any other retirement issue, we hope you’ll reach out to our team. Contact Stonepath Wealth Management to set up an appointment!