On today’s episode of the Wiser Roundtable Podcast, the team goes over managing cash flows – a major part of retirement planning. Many people aren’t fond of the word ‘budgeting’ because of its inherent connotations, but managing cash flows during retirement is essentially just that.

Listen on Apple Podcasts or watch on YouTube:

SUMMARY:

More Than Just a Nest Egg

Accounting for daily living expenses like food, shelter, healthcare expenses, and transportation, coupled with discretionary expenses such as travel, hobbies, or other luxury items, is a pivotal step in preparing for financial success. Retirement isn’t just about a nest egg – it’s more than that. What amount you want to live on annually, along with inflation and rising healthcare costs, is what you should try to focus on. Optimization of your cash flow and tax-smart withdrawal strategies will help you continue to succeed.

Inflation and Economic Environment

One variable that is often unaccounted for is inflation. Because of inflation, a dollar today ‘is not the same’ as a dollar 10 years from now. Rising inflation will eat into your nest egg over time, so using around 2.25%, our firm aims to account for this increase when conducting retirement planning. Healthcare costs are often underestimated when calculating a ‘nest egg’ number as well. The cost of healthcare increases around 5% annually, so over the course of a 30-year retirement span, you could end up paying over a quarter of a million dollars out of pocket for healthcare alone. Cash flows must be able to withstand these kinds of fluctuations. A variety of software and services are available to help guide you through this planning process.

Secure vs. Insecure Sources

Social security, IRAs, Roth IRAs, brokerage accounts, annuities, savings accounts, rental income/real estate, and some pensions are all types of cash flow that help shape your financial path throughout retirement. Social security is considered a secure income source because it’s fixed, but social security alone often does not support the lifestyle and personal needs of retirees today. So how do we close the cashflow gap between anticipated expenses and secure income? That’s where portfolio income comes in. Portfolio/investment income, while not 100% secure, will act as a supplement. By carefully planning for a required rate of return through managing risk and volatility, you can achieve financial freedom that lasts all the way through retirement.

Our Approach

Index funds are a great way to get exposure to the asset class for various sectors in the economy at a low cost. Withdrawal strategies such as the “4% rule” are a great place to start. Our firm also runs a Monte-Carlo simulation – a trial of 1,000 outcomes designed to zero in on the highest probability of success. Having a steady cash bucket and maintaining these funds through self-control and discipline can provide you with greater peace of mind as you prepare for the future.

TIMESTAMPS:

1:03 More Than Just a Nest Egg

5:10 Inflation and Economic Environment

8:38 Secure vs Insecure Sources

15:07 Our Approach

LINKS:

Learn more about Casey Smith and connect with him on Twitter.

Learn more about Brad Lyons.

Learn more about Matthews Barnett.

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Learn more about the Wiser Wealth Management Roundtable podcast and access previous episodes.