5 Tips for Finding the Cash Flow You Need During Retirement

By Tom Drake

The days of working in a career for 30 years and then retiring with a pension adequate to your retirement needs are long gone. Instead, you are far more likely to need retirement income from a variety of sources.

Getting the cash flow you need during retirement is a process that should start now, no matter your age. The earlier you start planning ahead, the better off you’ll be. Here are five tips for getting the cash flow you need during retirement:

1. Start with a Retirement Needs Assessment

One of the biggest problems facing future retirees is the fact that many of them never performed a retirement needs assessment. According to the EBRI, only 44 percent of workers have attempted to calculate what they will need for retirement. That means that 56 percent of workers haven’t figured out what they might need.

If you want to make sure you have the cash flow you need during retirement, it’s vital that you determine your likely costs. Once you know where you stand, and what you will need to succeed, you can move forward. Make sure that you save as much as you can toward retirement so that you build up a nest egg that can provide you with regular income.

2. Consider Asset Allocation

In recent decades, it’s become apparent that asset allocation is one of the most important factors of successfully saving for retirement. Rather than trying to pick a “winning” stock, it makes more sense to look at your portfolio as a whole, and allocate your assets according to class. This means strategically figuring out the correct proportion of stocks to bonds you need in your portfolio, as well as considering whether or not other asset classes, such as commodities or real estate, should be represented in your portfolio.

Your asset allocation should be based on your risk profile, and you should carefully rebalance your portfolio over time as you near retirement.

3. Figure When You Should Take Social Security Benefits

Think about when you expect to take Social Security benefits. There is no “right” answer for everyone. Indeed, when you should beginning taking these benefits depends on your individual situation. Start thinking about this now, though. If you can put off taking Social Security benefits, you will have a higher income from them later. However, you might need more immediate relief closer to your eligible age for taking these benefits. Run the numbers, and include them as you plan to meet your retirement cash flow needs.

4. Consider a Reverse Mortgage

If you are close to your retirement, and you aren’t sure that even catch-up contributions are going to help you meet your needs, you might want to think about a reverse mortgage. If you own your home outright, or if you have a lot of equity in it, you might be able to get a reverse mortgage. In this situation, the bank pays you based on your equity. For those over the age of 62 who are interested in this process, it makes sense to work through a lender who can get you a HUD reverse mortgage. Know what you are getting into, though, since fees can be high. You should also understand the repayment terms, since moving out of your home and into a long-term care facility can trigger repayment on the loan.

But, for seniors who need a little extra cash flow, and whose biggest and best asset is the house, a reverse mortgage can bridge the gap.

5. Consider an Annuity

For some, it makes sense to get an immediate annuity later to lock in a regular monthly income. If your nest egg is big enough, you can  use a portion of it (but usually not all) to purchase an immediate annuity that will pay out regularly. If you want to establish the baseline cash flow you need, this can be a decent enough choice. Younger people can choose to invest in deferred annuities, and then get the advantage of regular income once the retire, but it’s important to understand that not all annuities are created equal. You need to be careful, and consult with a trustworthy third-party before getting involved with an annuity.

There are a number of ways to meet your cash flow requirements in retirement. Start now to consider your options so that you have less to worry about later.