Retirement Income: Learn to manage your cash flow


Retirement will likely mean big changes in your financial life.

Your sources of income shift, as do expenses. Financial priorities often change as you move from saving for retirement to generating income from your hard-earned retirement savings.

Retirement is a good opportunity to start fresh. By using a clean-slate approach can make dealing with finances easier, more efficient, and cheaper if you can consolidate accounts and mitigate fees.

Retirement Income Management

First, consider the ways that retirement income can change cash flow.

Your weekly or biweekly paycheck may be replaced by income from a variety of sources including

  • Social Security benefits
  • Pension distributions
  • Annuity payments

And if you are age 70½ or older, you will be required to take minimum distributions from your retirement plans – such as 401(k), 403(b) and IRAs. Some retirees may even generate retirement income from part-time employment or sales of assets.

This means that money is arriving in varying amounts on very different schedules—most likely in the form of a check.

You need to manage these retirement income sources efficiently. You can set up direct deposit services, or use a financial institution that offers remote deposit.

Your spending patterns are likely to change as well. This change reflects both your new lifestyle and shifting financial responsibilities.

When you retire, often nothing is being withheld for state and federal income taxes, so bear in mind you may be responsible for any quarterly estimated taxes.

Most retirees generally have to pay health care and other insurance premiums directly to the insurance carrier. Some retirees may also find they are traveling more or living in dual residences.

These situations can make monthly bill paying even more complicated.

Consider simplifying and new options. This may include taking advantage of everyday financial management tools over the phone, on the Web, or via a mobile device.

A Bucket Approach May Work For You

At any point in your retirement, your retirement income streams may be producing more cash than you are spending.

If you have this situation, you’ll want to think about how to continue to invest that excess cash flow to help meet both your near-term liquidity needs and longer-term needs for both retirement income and growth.

Make liquidity—that is, how quickly you need access to your cash—a central consideration.

In general, the more comfortable you are with risk, the greater the level of risk—and potential return—you can afford to pursue.

One approach you may want to consider is to bucket cash for different short- and longer-term needs. Some examples of these living expenses, short-term goals, and emergencies. Here are some ways to implement each:

  • Living expenses – Consider keeping cash or cash equivalents invested in lower-risk, highly liquid investments such as money market funds or short-term Treasury bills.
  • Short-term savings goals – If you have short-term savings goals, like a car purchase or a dream vacation, you may want to consider investing in low-risk vehicles such as Treasury bonds and FDIC-insured CDs with maturities that correspond to the date you need the money.
  • Emergencies – Consider investing this money in a mix of highly liquid accounts such as money market funds, and less liquid options such as CDs or conservative bond funds.

Tying it All Together

It is key that you make sure your money can be easily accessed, moved, and invested according to your needs. Of course, ideally you are doing so in a way that mitigates overall fees.

You can consolidate by putting all their funds into a group of accounts with a single provider so that money can move easily from one account to another.

If you like this option then look for a provider that offers options to easily transfer money from your retirement accounts, such as IRAs, into your cash account. You can find some institutions that offer periodic withdrawal methods so you can harvest retirement assets or earnings on a schedule that fits your needs.

These periodic withdrawals help you create a “just-in-time” retirement income stream and allow remaining assets to produce potential earnings until you need more cash.

Mitigate Your Fees And Increase Efficiency

Retirees can create a similar kind of financial network by linking accounts across different banks and brokerage firms.

Consider an account that offers:

  • Free direct deposit
  • Mobile deposit
  • Online access
  • Free checks
  • An ATM or “no-fee” debit card
  • Free transfer services
  • The ability to speak with a representative by phone or in person

It’s Essential To Have A Clear Picture Of Your Finances

Whatever retirement cash management system you create should offer a comprehensive view of your finances.

You need to be able to access concise, up-to-date reports on your cash balances, transactions, and assets as it will help prevent unpleasant cash flow surprises.

Remember putting a good cash management system in place now can pay off in the future. It makes it easier for you to handle your finances as you grow older.

Record all the specifics like direct deposits and automatic transfer schedules, so if you are unable to access your account(s), a properly authorized spouse or third party can make changes as necessary.

If you take the time to think through the “what ifs” of future cash management it means that you get to make the decisions about how you'll be using your financial resources during a retirement that may stretch 30 years or more.

And that is peace of mind you can’t put a price on.

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