When you retire, it’s all about cash flow. In this article, we’ll go over how the most successful retirees in this country create sustainable cash flow in retirement. We’ll share some of the techniques we use to help guide our clients at REAP Financial. Be sure to read through to the end to learn all our tips to solidify your retirement cash flow.
1. Diversify Your Portfolio
The first thing successful retirees do to maintain sustainable cash flow in retirement is diversify their portfolios. They have multiple streams of income, such as interest earned from a CD, money market accounts, or a well-diversified portfolio of dividend stocks. With dividend stocks, payments are based on the number of shares owned rather than their value. That means that even if the value fluctuates, dividend stocks may provide a consistent, reliable retirement income.
You may also consider adding real estate, an indexed income annuity, or other income-generating investments to your portfolio. No matter what you choose, aim to include diversified streams that are growing or holding steady, even when the market is in decline.
2. Plan for Inflation
In the past few years, we’ve seen heavy inflation in the United States, higher than in decades prior. While inflation won’t leave you broke, it can significantly reduce your standard of living over time. Failing to factor inflation into your long-term plan can erode your purchasing power, preventing you from affording your desired retirement lifestyle. At REAP Financial, we generally recommend considering 3.5-4% inflation, since that represents the approximate 100-year average inflation rate in the United States.
You’ll likely need to adjust your plans throughout the years and potentially tinker with that number. However, the important thing is that your long-term plan accounts for inflation and includes a cash flow strategy to keep up with an inflationary environment. Inflation is inevitable, and we aim to help ensure you don’t have to decrease your lifestyle in retirement because you failed to consider inflation.
3. Understand Medicare Premiums & Other Expenses
Understanding your Medicare premiums and other expenses will be a key part of your retirement planning. Medicare premiums are income-based, meaning your earnings determine how much you’ll pay. This means that if you make over a certain amount of income, you’ll pay more for Medicare B and D. These extra costs are known as IRMAA surcharges. When you build your retirement plans, you want to consider whether your cash flow plans account for any potential rises in your Medicare premiums.
Many retirees don’t think about this possibility until it’s too late, since they may be in a lower tax bracket in the early retirement years. However, as you start taking required distributions, your income may grow substantially and cause you to jump tax brackets. To avoid surprises, be mindful of Medicare premiums during your retirement planning and incorporate any increased premiums or other costs into your cash flow plan.
4. Work with a Fiduciary Adviser
To responsibly plan for retirement, it’s beneficial to work with a fiduciary adviser. Legally, a fiduciary adviser has to make recommendations that are in your best interests. At REAP Financial, we believe one of the most important hiring decisions in your life is hiring a financial adviser. When hiring a financial adviser, confirm that they are a fiduciary.
Another reason to work with a fiduciary retirement adviser is so you can create a coordinated budget. While we’ve said retirement is all about cash flow, your budget is the most important number in your retirement plan. Your budget is essential because your resources in retirement will be limited in some way; there’s only so much money at the end of the day. You need to know what budget your portfolio can sustain and stay within those bounds.
Your budget can be designed to fit your needs in retirement; for example, you might plan for a heftier budget to accommodate more travel in early retirement. Whatever your plan, work to stick to your budget. This can be different for retirees, since many are not used to living on a budget while they’re working. When you retire and you have to live off your portfolio, knowing and living within your budget is essential for retirement success.
Financial Planning for a Reliable Retirement Cash Flow
Creating a long-term retirement cash flow requires a carefully crafted strategy. At REAP Financial, we specialize in helping clients build diversified portfolios, plan for inflation, and navigate Medicare expenses. Our fiduciary advisers offer personalized financial guidance designed to align with your goals and help you achieve a secure retirement.
Based in Austin, Texas, REAP Financial is dedicated to helping high-net-worth individuals and families prepare for retirement with confidence. Contact us today for a complimentary consultation and discover how we can help you create a sustainable cash flow strategy tailored to your needs.
Contact REAP Financial
Email: admin@reapfinancial.com | Phone: (512) 249-7300
Office Address:
9414 Anderson Mill Rd #100
Austin, TX 78729
