Cash Flow In Retirement
People who are getting ready to retire don’t go to a financial planner to be told how much they can spend. Rather, they want an indication if their spending has a probability of exhausting their assets. As financial planners, we can make some assumptions about what a safe withdrawal rate is, but we realize that “black swan” events do occur and that regular monitoring of client portfolios and withdrawal rates are required. If it is determined that a client’s portfolios cannot sustain their desired cash flows, we discuss changes that will be necessary to insure the money lasts for their lifetime.
As time passes and inflation causes prices to increase, we have discussions with clients about whether an increase in their monthly withdrawals are necessary.
Most clients will adjust their spending habits based on market conditions, spending less when portfolios decline and more when they go up.
To prevent month-to-month variations in client incomes we establish a “spending account” that’s usually invested in a money market fund to cover at least a year’s worth of anticipated withdrawals and expenses. As that account is depleted over time, it becomes necessary to replenish it and, if required, the portfolio is re-balanced.
Regular updates and reviews create peace-of-mind in people who look to their portfolios for retirement income.