Retirement Planning: Consider Cash Flow in Addition to Accumulation

It may help relieve retirement anxiety

Many people set up their retirement planning with a 401k mutual fund account through their employer, commit to the percentage that gets them the employer match, and look at their account balance once a year at tax time. They consider their retirement plan in place. 

Then, they read the amount they will actually need in their account when they retire and see that their savings plan is not meeting their need. Maybe it’s time to think about retirement money in a different way: instead of only accumulation, add cash flow objectives into the plan. 

Most working people already live in a ‘cash flow’ world. Their job provides the monthly income, and the money is used to pay for everything needed, plus some savings.  

Retirement planning can be based on the same model, but with different income sources. 

Guaranteed income 

Without a job, where will the cash come from? Most likely, smaller amounts from several sources will be combined to meet the goal. Of guaranteed income options, Social Security is the first source. However, Social Security retirement benefits will replace only about 40% of most people’s current paycheck.  

Annuities also offer guaranteed income each month, from a set date for a specified amount of time. Using a saved sum, or making multiple payments, to purchase a fixed or fixed index annuity will provide a consistent income each month, based on the configurations and options in the initial contract.  

If there is an attractive part-time employment option to continue earning cash, it can be a good way to stay active and social, and provide another small monthly income source. 

Some people may have a pension from their employer that will fill the Social Security gap, but these are becoming rare.  

Savings from separate Individual Retirement Accounts (IRAs) will, of course, be available to retirees, but these again require the accumulation of cash rather than generating cash in retirement. When planning future monthly cash flow, plan to take Required Minimum Distributions (RMDs) from IRAs starting at age 73. (In late 2022, Congress passed legislation that raised the age of initial RMDs from 72 to 73 years old starting in 2023.) 

Investment scenarios 

The set-and-forget 401k will provide income – based on the amount the saver was willing or able to give up earlier in life – and can be taken however is needed, with some age and other restrictions. The amount in the account will depend on how well it was managed over time, current market standings, and timing of withdrawals. 

Rental property is a popular investment that provides, in theory, a sustained monthly income. There is ongoing management and maintenance, as well as tax bills for this investment, but real estate can be less volatile than stock markets for risk-averse investors. 

Financial advisors and wealth management companies can provide individualized investment retirement planning to meet anticipated needs. Chris Lean, Chartered Financial Planner with Aisa International and TailorMade Pensions explains, “We run both Income and Growth portfolios. The Income portfolio provides natural income (i.e., as it is earned) and this depends on interest and dividends. However, in poor markets, the income can go down.” 

Another strategy is ‘total return’. In this context, ‘total return’ means spending a portion of the average annual rate of returns over a longer period, of, say, 10-20 years, rather than focusing on specific annual return rates or just using portfolio income. The aim is to meet or exceed the withdrawal rate. 

“Our Growth portfolios are designed for out-and-out growth, but we have clients who have specific needs for set amounts and that is provided by the total return (income and capital), which often provides a higher ‘income’ than by taking natural income,” says Lean.

How long is retirement? 

The number of years that savings and generated earnings will be needed is an unknown. But there is data on this topic. About one out of every three 65-year-olds today will live past age 90, and about one out of seven will live past age 95. So, when planning for retirement at 65, there could easily be 25 to 30 years of funding needed.  


Common sense assumptions can be the downfall of a good retirement strategy. For instance, taking the sum of current expenses and multiplying it by the number of years in retirement will result in a number that reflects expenses incurred now. But aging brings other expenses the retirement budget will need to cover: 

  • Medicare will not cover all health care expenses during retirement and it won’t cover most long-term care needs. 
  • Aging at home could require expensive renovations: accessible bathrooms, wheelchair ramps, etc. 
  • Taxes will need to be paid on any untaxed savings, distributions, and earnings. 
  • Although a home may be paid for, the property taxes, HOAs, and insurance will be ongoing expenses. 
  • Other aging items will need to be replaced: cars, water heaters, air conditioners, plumbing, appliances, etc. 

Retirement brings changes that require thought: income sources will change, as will expenditures. Forming a well-structured retirement plan now is time well spent. 

The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation. 



Susan Austin

Susan Austin is a freelance writer living in Prague, Czech Republic. Originally from the U.S., she has written and worked in many industries, including healthcare, transportation, travel and leisure, museums, education, and archaeology.


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