Managing your cash flow with the Lifetime Planner
Cash flow is a key indicator of how well your plan works. Ideally, you'll see a positive cash flow each year. If your cash flow is consistently positive, consider increasing your savings contributions to prepare for future expenses.
Adjusting your before-retirement cash flow
If your cash flow before retirement is negative, you’re spending more than you earn. Review both your income and expenses for the years showing negative cash flow. To address negative cash flow, consider the following steps:
If the shortage is substantial (more than 5% of your income), consider adjusting your plan.
If the shortfall results from anticipated special expenses, the Lifetime Planner models the sale of taxable investments to cover it. The net amount withdrawn is added to your cash flow to address these expenses.
If the shortfall is due to ongoing expenses like taxes, living costs, and savings, your plan may be unrealistic. This suggests you’re living beyond your means and may not have enough money to cover expenses and save for retirement.
The Plan: Results snapshot alerts you to cash flow shortfalls. You may choose to ignore minor shortfalls if you believe you can reduce your living expenses to cover them.
Suggestions for increasing income before retirement
There are several ways to address cash flow shortages before retirement. Consider the following options:
Do nothing: If the shortage is brief or represents a small portion of your income, you may not need to act. Just note that money will be tight during those years.
Take a second job.
Sell assets: Consider selling unnecessary items and investing the proceeds.
Take out a personal loan: This can help cover a particular year’s cash flow shortfall, such as college expenses.
Review additional income sources: Ensure all expected income is accurately reflected in your plan.
Adjusting your after-retirement cash flow
After retirement, managing your cash flow is essential to ensure you have enough income to cover expenses. If your cash flow at the end of the year is positive, the Lifetime Planner reinvests any unused portion of your minimum withdrawal.
During retirement, your cash flow may be zero if you’re withdrawing just enough to cover living expenses. Negative cash flow means your retirement investments and income are insufficient, causing your plan to fail. Here are some strategies to address negative cash flow:
If your portfolios have funds, the Lifetime Planner models withdrawals to cover expenses.
If taxable investments aren’t sufficient, the Planner models selling tax-deferred investments to cover the shortfall and any resulting taxes.
Portfolios continue to grow based on their rate of return and any new contributions.
The net amount withdrawn is added to your cash flow to bring it to $0.
Suggestions for increasing income after retirement
To improve cash flow after retirement, you can consider several approaches. Review the following options:
Consider part-time work: Taking on part-time or freelance work can supplement your retirement income.
Delay retirement: Working longer allows more time to build your savings and increase Social Security benefits.
Sell assets: Selling unneeded assets, such as collectibles, vehicles, or property, can generate additional income.
Invest strategically: Review your investment portfolio to ensure it is balanced and aligned with your income goals.
Rent out property: If you own property, consider renting it out for regular income.
Annuities or lifetime income products: Consider converting part of your savings into an annuity for guaranteed lifetime income.
Suggestions for decreasing expenses after retirement
If increasing your income is not feasible, consider these more practical strategies to reduce expenses and improve your cash flow:
Reduce overall living expenses: Avoid overspending and reassess your daily and monthly expenses.
Lower mortgage payments: Moving to a less expensive home or refinancing your mortgage can lower monthly payments.
Downsize your home: Renting or moving to a smaller property can significantly reduce ongoing expenses.
Negotiate bills and expenses: Contact service providers to negotiate better rates for insurance, utilities, internet, or subscriptions.
Refinance loans: Refinancing your mortgage or other loans at lower interest rates can reduce monthly payments.
Use budgeting tools: Track your spending and identify unnecessary expenses you can cut.
Reduce special expenses: Look for ways to minimize or eliminate significant expenses, such as college tuition or costly hobbies.
Your yearly net worth
The Lifetime Planner calculates your net worth annually based on your cash flow, investments, assets, and liabilities. The process involves the following steps:
Increasing the value of your home and assets based on the annual percentage increase you’ve entered.
Increasing the value of your investments based on the annual return percentage you’ve selected.
Adding your planned savings for the year.
All gains are reinvested each year. For taxable savings, gains are reinvested after taxes. For tax-deferred savings, the entire gain is reinvested. The Lifetime Planner subtracts the balance of any loans in effect that year to determine your net worth:
Net worth = Investments + Home + Assets - Loans
The Lifetime Planner then calculates your cash flow and net worth for the next year.
Not Available in Canada
This tool is unavailable for users of our Canadian products.