Cash flow, or money going in and out of your household bank account, may be the most important personal financial metric for retirees. Cash flow positive retirees are financially good to go and do not worry about paying their bills.
Retirees, and their Financial advisers, often focus only on the money in side of cash flow, that is retirement income. But retirees should thoroughly evaluate the target and aim of cash flow. That is expenses or the money out side of the ledger, also.
Thus, it is essential for retirees not to skip over a thorough review of estimated retirement cash flow.
Knowledge is power. To know thyself was such an important principle that this adage was inscribed on the Temple of Apollo in Ancient Greece. When retirement savings and cash flow are on the line, do not allow stock market fear impact your investment decisions.
Reviewing expenses empowers you with information to make informed, realistic decisions. A known fear is less intimidating than an imagined, uninformed worry.
Here are some suggestions to help retirees navigate volatile markets and perform an essential cash flow assessment.
- A cash flow management isn’t budgeting. It is a process of clarity and honesty. It helps retirees really see all their income (money in) and spending (money out). Cash flow management allows you to see what you are doing wrong (or right). Knowledge is power and financial freedom.
- Be realistic. Health care is a huge expense, for example. So, plan realistically. Living expenses are often more than anticipated and returns on investment are never consistent. Be conservative in your estimations and assumptions.
- Get comprehensive. Beyond the standard expenses, make sure to allot expenses for items such as continuing home repairs, occasional renovations and automobile replacement costs.
- Don’t get lost in the weeds. It is more important to capture all the large expenses than worry about recording precise numbers. It isn’t necessary to record the past year’s expenses down to the penny.
- Control your emotions. Retirees, like all people, are emotional. However, emotional people don’t make the best investors or managers of personal cash flow. Do not allow fear impact your investing or cash flow. As Warren Buffett said, “If you cannot control your emotions, you cannot control your emotion.”
When stocks are down and stock markets are crashing, ‘don’t watch the markets closely’ and ‘stick to your financial plan’. If you were to react to the market wild swings and all the fear everyone has when it drops, you’ll end up with less value and cash flow than you started, every time. The stock market will fluctuate up and down dramatically at times. It is not always a rational and logical place because of fear.
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