Tips for managing cash flow in retirement

Big changes happen when it is time to retire. Your financial life such as sources of income and expenditures can change. Where do you begin to manage it all? When it comes to retirement cash flow there are 2 main ideas to understand: cash flow and liquidity. 

Cash flow is the amount of money you have coming in and out each month. Income includes social security, annuity income, pension income, investment income, etc. Expenses could be your living needs (housing, groceries, HOA fees, taxes, insurance, vehicle) and other expenses such as entertainment, travel, and repairs. 

Liquidity is defined as turning assets into cash. The more 'liquid' it is the easier it is to turn into cash. An example could be selling mutual funds, converting insurance policies into cash, selling art or coin collections to pay for your expenses. It is a balancing act of sorts as you don't want too much money in cash and then be missing out on potential growths. 

To start, you need to replace your weekly/bi-weekly income in retirement. The replacement income could be social security, pension disbursements, part-time employment, or real estate rental income. With multiple sources of income, it is convenient to set up direct deposit or remote banking (scanning checks for deposit with your smart phone). Keeping your income organized will help you easily manage it all.

Many times, you will have excess cash from your multiple sources of income. In this case, use these tips to invest the cash. For living expenses, invest in lower-risk, high liquid funds such as money markets. For your short-term savings goals, consider treasury bonds or FDIC-insured CDs with maturities that fit the same date you need the money. For emergencies, make sure to save 3-6 months of expenses in case any unexpected expenses arise. 

Another thing to keep in mind is that once you reach the age of 70 1/2 there are Required Minimum Distributions (RMDs) you must take from your retirement account. You have until December 31st each year to take your RMD. Consider automatic withdrawals or a one time distribution to avoid paying a penalty for forgetting to take your RMD. 

'The key to managing cash in your retirement is to make sure your money can be easily accessed, moved, and invested according to your needs, and, ideally, to do so in a way that mitigates overall fees' according to Fidelity Viewpoints. Make sure to take advantage of ways to streamline how you manage money coming in and going out. Your cash flow will change during the course of your retirement so make sure to contact Brien at Traditions Wealth Advisors at Brien@TraditionsWealthAdvisors.com or 979-694-9100 to manage your financial resources.