Planning your retirement? Cash flow is king
As you or a family member transition to a retirement lifestyle, financial priorities shift from saving as much as you can to making the most of the money you put away during your working years. Because each month, you’ll need to ensure you have enough cash to cover your expenses.
Retirement changes cash flow. Rather than receiving a steady paycheck, you may be drawing income from multiple sources — Individual Retirement Accounts (IRAs), Social Security benefits, pension distributions, investment income, annuity payments or even a part-time job. With new income sources, expenses and spending patterns, monthly bill paying can become more complicated. Your retirement lifestyle may produce bills for travel and leisure activities that you didn’t previously pursue. You may now be responsible for paying insurance premiums directly to your carrier, rather than through a paycheck. And in retirement, state and federal income taxes aren’t withheld from taxable income generated by Social Security or pension benefits, IRA withdrawals or investments, so it’s up to you to put aside money for quarterly estimated taxes if necessary.
Consider the following strategies that can help you make sure you have enough funds each month to cover your debts and expenses, and maintain your lifestyle.
Set a budget — and follow it. For responsible cash-flow planning during retirement, you need to establish a budget. How much income are you bringing in, and what expenses must be covered? Budgeting can determine the amount of cash needed to live comfortably, as well as to help project long-term spending needs. Whether you track using an Excel spreadsheet or an online tool like Mint, be sure to evaluate your budget quarterly and make any necessary adjustments.
Plan for taxes. For most retirees, tax planning involves analyzing your investment vehicles and their tax consequences. For example, one type of account may have different timing or tax penalties for withdrawals than another. When funds are needed to sustain your monthly cash flow, it’s important to be mindful of the tax ramifications when choosing the account from which to draw those funds.
Invest wisely. If your income streams are producing more cash than you’re spending each month, think about investing to help make that money work in your favor. Don’t overlook liquidity — how quickly you can access cash if needed for unplanned expenses.
Don’t touch your emergency fund. You never know when a situation may require immediate cash. So, when on a fixed income, you need to have that money readily available. You and your family should set aside an amount based on your comfort level and budget. This can help prevent scrambling for funds when you need them most.
Consider financial planning tools like a reverse mortgage. Downsizing, refinancing or relocating can help generate cash flow, but a reverse mortgage allows you to tap into the equity you’ve built without having to sell your home. You can choose to take the proceeds as a steady stream of monthly funds, to supplement your income; and/or you can establish a standby line of credit to be used as needed, such as for home improvement or a “rainy day” fund.1 You can even use a reverse mortgage to buy a home that better fits your life. How can that help with cash flow? Monthly mortgage payments are optional, so you won’t have to pay all cash to avoid having monthly mortgage payments — that means you can keep more of your savings and invested assets. (As with any mortgage, you must meet your loan obligations: Keeping current with property taxes, insurance, maintenance and any homeowners association fees.)
A strategy for maximum retirement flexibility
There are many ways to help maintain positive cash flow during retirement. Some strategies might be more effective for you than others based on your unique needs, so it’s important to know the options available to you. If you’d like to better understand how a reverse mortgage works, call an experienced loan specialist at Reverse Mortgage Funding today at 888-277-1567.
SEE WHAT FUNDS YOU MAY HAVE AVAILABLE
If you have equity in your home and believe you meet the eligibility requirements, a HECM may be the option that could help you retire smart.
1 Borrowers who elect a fixed rate loan will receive a single disbursement lump sum payment. Other payment options are available only for adjustable rate mortgages.
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