Unobstructed Thoughts

Managing Cash Flow in Retirement


Let’s talk about cash flow.  Most of us, while we’re employed, manage our own cash flow in a straightforward fashion. We earn a certain amount of income, we have a percentage automatically taken out each pay period to go into our 401k, and our cash flow comes in every couple of weeks in the form of a paycheck or direct deposit to our bank. Hypothetically, you and your spouse receive such renumeration every 2 weeks and it’s a fairly consistent amount without a great deal of variation. You know that for the most part, your bills like your mortgage, utilities, food, etc. are also fairly consistent month-to-month.  Ideally, given that you have a good idea of your monthly income and expenses, over time you manage to spend less than you make so you can build a bit of a cash reserve to take on larger one-time bills (think vacation or a house repair), and you save/invest the rest to build up a portfolio as part of your nest egg and funds that will help you maintain a comfortable lifestyle when you ultimately retire. I think for most of us, I just described the monthly balance and how we manage cash flow.

Sometimes we don’t really think about how something so basic as your cash flow will change when you retire. What changes in retirement you ask? I think the biggest change that we see in retirement is the month-to-month inconsistency of expenses and the sources of income. Let’s, for purposes of this example, say you and your spouse both retire on the same day – you’re both 70 – and the next day you both go to the social security office to file to receive your first benefit. By waiting until you are 70 you have just helped your cash flow by receiving the max benefit. And so, like clockwork, on the first of every month your social security is deposited into your checking account. And now let’s also assume you have a small pension from a prior job that kicks in – most Americans are no longer covered by the traditional monthly pension, but for argument’s sake, you are. So, you have a small pension from a prior job that also flows into your bank account. So now we have three deposits that only cover about 1/3 of your monthly expenses… what about the rest?

Now let’s assume that you each have an IRA account or 401k that you rolled over into your IRA and now that you are 70 1/2, you must begin taking your Required Minimum Distribution (RMD). You can choose to take that amount out once a year or 12 times (ie. Monthly). For now, let’s assume the latter and let’s plan for that to flow into your bank on the 15th of each month. And here is an important fact that we have to take note of… the income flowing into your account at this point in this scenario has had ZERO tax withholding. So you either have to remember to pay quarterly taxes or have your IRA custodian withhold money from your monthly payments – again let’s pick the latter to avoid larger quarterly checks. With the income lined out so far, you are approaching 60% of your needed yearly cash flow. Well the rest must come from somewhere. That would be your other savings or even some part-time consulting work.

Let’s pick both – you work about 10 hours a week – and bill your client monthly and of course your client pays you right away and that covers another 20% of your cash need – now we are up to 80%. And the rest now comes from your investment accounts as referenced above

If you are like the average person you have roughly 2-3 different financial relationships, so you must manage this cash from about 6-7 different places and multiple accounts. Suddenly in retirement you find yourself acting more like a book keeper than someone enjoying the golden years.

So what can you do so you actually get to enjoy your retirement? It’s called consolidation. Bring your assets into one investment team, hopefully HighTower Westchester, and consolidate the multiple accounts at different firms, optimize the asset allocation and holdings in your portfolio and have us send you a consistent amount of money on a monthly basis.  We’ll work with your CPA to make sure we withhold the proper amount from your IRA – RMD’s and then make up the difference from your personal accounts.  We would then send you one or two payments a month to your bank on the day of your choosing thus streamlining both the management of the assets and disbursement of the assets and you can toss the ledger book or excel spreadsheet and worry about planning your next SKI vacation.  Another benefit of working with a financial advisor when consolidating your assets is we’ll also help you choose the right investment strategy to manage any excess cash-flow, taking into consideration your near-term goals, your long-term needs, and your emergency fund.

Peter Lang – Managing Director – HighTower Westchester

914-825-8631 –

Hightower Westchester is registered with Hightower Securities, LLC, member FINRA and SIPC, and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities, LLC; advisory services are offered through Hightower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

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This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of Hightower Advisors, LLC, or any of its affiliates.