Planning Retirement Cash Flow [Video]

by Michelle Smalenberger, CFP® / July 31, 2023

In retirement, your cash flow is how you will cover all your expenses. Do you know the different types of income you have or how to use them?

Hi I’m Michelle Smalenberger, a fee only financial advisor here at FDS. If you’ve been looking for videos on financial topics, be sure to subscribe to our channel! 

Today’s topic is income and cash flow in retirement

The main points we will cover are

  • What are the different types of income you might receive in retirement?
  • How do inherited funds affect income you receive in retirement?
  • How should you manage cash flow?
  • Where does all of this fit into your financial plan?

But before diving in, I want to mention that we have a lot of additional videos on these separate topics you’ll hear me mention today.  So check the notes below to watch those videos too.

First, we are talking about income and cash flow in retirement.  

  • As people consider retirement they naturally become a little nervous that their paychecks will end.  We like to remind people that their paychecks, as they’ve known them, may end but other “paychecks” will begin.  
  • You’ve spent your working years saving money and in retirement is when you switch to spending those funds on expenses you’ll have. 

Let’s talk about the different types of income you may receive during retirement:

  1. Social Security:  This is a basic retirement benefit most people receive unless you specifically opted out or earned another benefit like a public pension that disqualifies you from receiving social security.  You may also receive social security based on someone else’s work record like a spouse.
  2. Pension:  Your employer may have had a pension plan that was contributed to on your behalf as an employee benefit.  In retirement you start to receive these funds as one of your new “paychecks”.  
  3. Distributions or Withdrawals from your retirement accounts:  The funds you receive from these accounts are a type of paycheck but it does seem strange to call them that.  However, this was why you saved those funds.  Retirement was what they were for.
  4. Inherited Funds:  Here’s another example of income you could receive.  It might literally be income as you receive payments of income on investments you inherited.  Or you could receive funds outright that now you may decide to turn into income. 

How Should I Use Inherited Funds?

I would like to make a quite note on inherited funds here really quick.  We often get the question how to invest funds people receive as an inheritance.  Think about it this way.  When you received these funds the person giving them or passing them on to you is completing a goal of theirs.  So now when the funds come into your plan you need to invest them for your plan.  

How Do I Create A Cash Flow Plan?

Finally, here’s an order of how to consider the cash flow.

  1. First, add up the regular income you will receive from things like social security and your pension.  
  2. Then you can decide how much income you still need to draw from your investment accounts.  

Now you can set a regular schedule to withdraw funds.  And now you can choose where to take these funds from.  The most important part with this step is that you consider tax implications of the funds you are distributing.

You can take a look at our asset location video that describes to you the tax implications of withdrawing funds from different types of accounts.  Even taking money from inherited accounts can have tax implications if you’re selling assets to distribute.  

These are precisely the times when a financial plan can be really helpful.  Where there are a variety of tax and distribution rules to remember from different types of income sources it can get messy and messed up really fast.  You need confidence to know you’re making all the right decisions along the way.  That’s what we do!

If you’d like to get to know us a little better please check out our podcast called Behind the Designs to hear more great strategies and information to help you succeed with your finances!

Thanks for watching! 

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