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The Magic of Cash Flow Planning

What is Cash Flow?

During our working years, we earn wages from our employers, or profits from our businesses. It’s relatively straightforward to identify the money that comes in, the money that goes out and what’s left over each month. Ideally, that leftover amount accumulates and can be invested for spending in the future. This is cash flow.

What happens to future cash flow when we stop working?

What happens when the sense of security from a routine paycheck disappears? It can seem that a switch flips and overnight there is a move from accumulation to depletion and uncertainty. Sure, Social Security benefits, and for those lucky few, a pension will generate some income, but likely not near what was previously earned.

One option is to passively ride into retirement with faith and a fixed income from the government. Another, arguably better, option is developing a long-term cash flow strategy as part of an overall financial plan. A cash flow plan is a critical decision-making tool that will balance priorities, define goals, and manage what-ifs. It can provide choices and alternatives for saving and future spending. Rather than forcing your retirement lifestyle into your cash flow, plan your cashflow to support your retirement.

What can a cash flow plan do for me?

A cash flow plan incorporates what-if scenarios that guide decision making. It will address inflation and taxation, estimate healthcare and education costs, account for retirement spending – and set savings goals today that can make a difference tomorrow.

What does cash flow planning entail?

The process begins by asking the right questions. The old way was to throw out a one-size-fits-all number and hope for the best. However, today, we dig deeper to arrive at a realistic, customized, and flexible answer based on each situation. In other words, define your goals then figure out how to afford them. What your retirement looks like depends on how you answer these questions.

  1. When you envision retirement, what do you see? Many will travel, buy a vacation home or pursue a hobby. The bucket list may include a fishing boat or classic car, or a Disney cruise.
  2. How much longer would you like to work? You may love what you do and plan to work well beyond traditional retirement age. Or you could retire right now and do something you love for pleasure rather than a paycheck.
  3. What will your standing monthly expenses be? Hint: What are your monthly expenses now? Many of us think we’ll spend less in retirement, fewer lunches out, no more business casual wardrobe updates, less mileage. Most of us don’t really change our lifestyles and in reality, spending doesn’t lessen, it just changes. (Having more time to play golf or join the wine club.)
  4. How many years do you expect to be retired, married or single? This question is different from deciding when you want to retire, rather it answers how long you expect to live. The insurance industry has mortality tables that provide benchmarks. But these should then be adjusted to address overall health, smoking habits and family history.
  5. How much do you save now? Saving now goes a long way toward a successful retirement, particularly if those savings are going into a workplace retirement plan and the contribution is matched, at least in part. Additional saving to a long-term investment account provides additional resources for future spending.
  6. What spending goals do you have before retirement (that could prevent you from saving)? Pre-retirement spending goals can include education expenses, weddings, family vacations, home purchases or renovations, etc.
  7. When do you plan to draw Social Security benefits and how much will they be? You likely can draw benefits when you turn 62, but should you? Can you draw benefits on another worker’s record while your own benefit grows? Do you intend to work part-time for a few years doing something you love? These considerations, and more, affect how Social Security can help optimize cash flow.
  8. How are your assets invested? Asset location and allocation can make a keen difference in the growth and income generated by the portfolio. Investing in the proper vehicles, within the proper accounts can help support income, minimize taxes, and fulfill plans for beneficiaries.

It can be overwhelming to think so far down the road. But that’s the magic of creating the cash flow plan now. Once built, the plan can accommodate changes as they occur as it incorporates what-if scenarios that guide decision making along the way. Don’t wait.  Let us help you get your plan in place. Start here to get a confidential, no-obligation consultation

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