We’ve all heard the expression “cash is king.” When it comes to retirement, it’s cash flow that’s king.
Knowing you’ll have enough reliable income to cover your expenses, not just this year but throughout your retirement, is vital. After all, you most likely won’t have significant work income to cover any unexpected shortfalls. That’s why projecting cash flow and expenses prior to retirement is so important.
Planning Isn’t a One-and-Done
Our financial lives are fluid, with expenses, wealth and potential income varying from year to year. That’s why it’s wise to do cash-flow planning not just once but annually. The beginning of the year is a good time to look at your retirement cash flow needs for the year ahead and beyond.
In the few years prior to your retirement, your wealth advisor will do the math to ensure you have the means to live a particular lifestyle throughout your expected lifetime without running short of money. But expenses vary from year to year, and larger changes occur. Tax or inflation rates may change over time. You may decide to get a part-time job to stay busy or to contribute meaningful work. You may incur larger-than-anticipated medical expenses. Maybe you’ll decide to buy or sell, let’s say, a lake house. Regularly reviewing your income potential and your income needs can keep you on track to live your best retirement.
Understanding Your Annual Review
When your wealth advisor reviews your retirement cash flow plan at the start of the year, they’ll likely look at several key elements.
- Income sources: Your advisor will assess your various income streams, including Social Security benefits, pension payments, investment income and any part-time work earnings.
- Expense evaluation: They’ll review your budget, anticipating upcoming expenses and ensuring your cash flow matches your financial needs.
- Investment performance: Your advisor will analyze your investment portfolio’s performance and may suggest rebalancing to align with your goals and risk tolerance.
- Life changes: The key here is to consider any major events that have occurred, such as health issues or family changes, which could impact your financial needs.
- Economic shifts: Your wealth advisor will evaluate how changes in tax rules, inflation rates or market conditions might affect your retirement income and expenses.
- Risk assessment: They will review potential risks to your retirement plan, such as longevity, healthcare costs and long-term care needs.
Your annual retirement cash flow review is also a good time to review other matters. Are the beneficiaries on your financial accounts up to date? Have any of your estate planning wishes changed? Have your retirement goals shifted? After all, it’s not uncommon for retirees’ lifestyle interests and expectations to change over time. By reviewing the large and small aspects of your financial plan, your wealth advisor can help to ensure your cash flow plan fully supports the satisfying retirement that you have earned.
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