Thinking about retirement Cash Flow Viewpoint.

Author’s  note :  this blog  originally began as a   weekly  supplement to my online personal finance  class.  Based  upon  interest I have resumed occasional blogging about retirement issues . 

This is the first in a series of new posts.   Please feel free to email the   author  or comment. 

Retirement  Planning  is  not about wealth it is  about cash flow

Our  whole  lives  when it  comes to planning for our future, for the  majority of us it has been all  about wealth accumulation.  Think about the questions you ask yourself of how you measure  you success with respect  to investment planning  for the future

1.      How  much is my  house  worth?

2.      What is the balance in my 401k  fund and other retirement assets?

3.      How much did my  money grow this year?… fortunately in 2017 for must of us the answer is a lot.

4.      How should I  allocate my assets  between stocks bonds etc.  based upon my age?

What’s  wrong with the above questions?

There  is  nothing per se  wrong with  these questions.  What’s wrong is that  most   those planning   the  wrong viewpoint or focus.   Their focus  is on wealth and wealth accumulation.  The  really successful investors   and best  retirement planners  change this  viewpoint when creating plans for retirement. .  Their focus  moves to retirement cash flow.   It’s a subtle difference.  However when your vantage point is cash flow rather than wealth accumulation,  this  alternate  viewpoint  leads   to looking at the problem differently and may  change   the decisions that you make to be successful with your plans..throughout retirement.

Don’t you need wealth to have cash?  

Yes, but as  you enter retirement your earning days are over and what  are you planning to use your wealth for ?

1.      Generating an income stream for yourself in retirement

2.      Providing  for you heirs. etc

3.      Other

Here  is where there wealth fallacies start.   Example Your Investment percentage in equities should be   100 minus your age. Is this terrible advice?  No! Its meant to say  that your earnings have stopped  you need this accumulated wealth  to last so you can’t risk as much money.  100%  true but this “rule”  assumes  that your only source of retirement income  is your investment portfolio.

A cash flow viewpoint  looks at  all the  cash flow you will have in retirement  

1.       Pensions
2.       Social  Security
3.      Draw down from  accumulated wealth (investments) for example your required distribution from  your 401k   or IRA plan.
4.       Other

If  like many  to be  retirees you  have  significant  future income in  your retirement from Social Security and Pensions the cash flow oriented viewpoint has you ask different questions including

1.       How do I balance my  current  projected   income  from  the potential of increased future inflation which will cut into my purchasing power  i.e. enjoyable retirement

But    more important and  where a wealth oriented focus causes  planning mistakes to be made  

     2.      When  should I actually  start  drawing each of the of the above  benefits… pension,            social security , 401k withdrawal?  (RMD) In order to maximize their benefit in total  for me.

So what’s the answer? 

The answer is that  the  solution  is unique to  every situation and  person. 

 However the methodology  for arriving  at the right solution for  you is the same for everyone.

My solution  was not the same as that for my  friends with whom I shared  this methodology.    It’s no secret.. it was just helping them organize their information in a simple cash flow oriented viewpoint and then  thinking through the decisions that were  right for them .

I’ll blog more on  specifics  soon.  But for now start  thinking about cash   flow and ask yourself these questions to get started.

1.    How much  will my social security check be if I take it  at  62?  66 (  or full retirement age)  or 70?
2.  What are all the options for taking my pension in terms of when  and cash flow?
3.    If I were  70  ½  today  how much  would my required minimum distribution be from my  401k (IRA)   this year  .  Assume  current value of plan.

KNOWING THE  ABOVE  WILL ALLOW YOU TO START LOOKING AT  YOUR RETIREMENT FROM A  CASH FLOW VIEWPOINT.

More to Come