Managing cash flow in retirement

Everyone has different dreams for their retirement. Many people imagine their days filled with leisure activities and family gatherings, others want to travel the world and explore new destinations, while some want to dedicate their time to community work.

Regardless of what your retirement looks like, there’s always a need for financial stability.

In the past we’ve talked about topics like how much you need to retire and retirement income streams, but today we consider cash flow in retirement.

And we look at some of the important steps you can take to help minimise financial stress so you can focus on the things you enjoy.

Understanding cash flow management

Understanding cash flow management

Similar to business cash flow, personal cash flow management is the process of determining how much income you receive compared to the level of expenses you have. When you understand that position, you can look at allocating any surplus funds towards other financial goals. Or if you don’t have a surplus, you can review your expenses to find opportunities to save.

Understandably, the higher your income and/or the lower your expenses, the greater surplus you have… which means you can achieve your goals sooner. This concept is not unique to retirement… it is applicable at all stages of life but becomes significantly more pertinent when you are no longer earning a regular working wage.

Will you spend more or less?

Will you spend more or less?

Before you retire it’s a good idea to think about what your spending habits might be like in the years to come. This is influenced by the type of lifestyle you want to lead. You will need to ask yourself some key questions and be realistic with your answers.

How often will you be eating out?
Do you want to go on regular holidays?
Will you need to purchase a new car or other high-priced items?
Is it important for you to give your grandchildren special gifts for birthdays and Christmas?

We understand that there will always be fluctuations in your spending. When you first retire, you might want to paint your house or do some landscaping in the garden, so there could be some initial expenditure that is higher than normal. But you should include in your planning any regular expenses that you can already pinpoint, so you can calculate your cash flow expectations.

Make an annual plan

Make an annual plan

When you have identified your anticipated expenses, you could consider creating an annual plan. Breaking down the year into quarters or months helps you highlight the most regular payments you will need to make.

This can include things like utility bills, insurance premiums and day to day living costs such as groceries and petrol, whereas the singular expenses such as overseas holidays or purchasing big ticket items are far less frequent.

Managing your cash flow is all about good planning and complete transparency of your transactions. Before you retire, you could practise your retirement budget for three to six months so that you can get a sense of what it will be like. This also allows you to make budget adjustments, if necessary.

Of course, it can take time to work out exactly how much you need and it’s not uncommon to finetune your fortnightly or monthly requirements. Adjusting your super pension amount while you determine exactly the right number could take up to a year… it’s all about finding the perfect balance.

Dealing with debt

Dealing with debt

When you are working, you may not feel the pressure of personal debt. Paying off a credit card, loan or mortgage when you are receiving a regular salary becomes habitual. But when these debts carry over into retirement, paying them out of your super savings could limit your ability to spend in the future.

If you are able to minimise your personal debt before retirement this will certainly put you in the most advantageous position for achieving a regular cash flow surplus. If you have concerns about your financial position, we recommend seeking professional advice well before you plan to retire.

We are here to help

We take great pride in offering our clients financial advisory services appropriate to their unique circumstances. We can assist with retirement planning and help you build a stronger financial position.

Our Financial Advisers are here to support you now and well into the future. If you’d like to discuss your current financial situation, please contact us today.

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and how they choose ... with confidence and certainty.

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