Retirement Planning Is Cash Flow Planning

Cash flow planning may sound complicated, but what it boils down to is comparing your assets to your expenses over time and identifying periods when you may fall short and when you may come out ahead.

(Image credit: © Micah Young)

Years ago I saw a poster that said, “Happiness is a positive cash flow.” I believe that’s true, especially when it comes to your retirement. And I believe that one of the best ways to find that particular form of financial happiness is to use cash flow analysis in your retirement planning.

It’s a simple exercise. To begin with, gather information for all the sources of income you’ll have during retirement. Since this analysis will help you determine what you’ll need to earn from your liquid assets (stocks, bonds, 401(k)s, etc.) to meet your income needs, leave them out of the equation for now. Instead, list income from pensions, real estate, Social Security or part-time employment. Then figure out how the timing of each of those income sources will affect your finances year by year. In other words, when will you receive that money? For example, will you receive Social Security benefits at beginning at age 66, or do you plan to wait?

Carefully Consider Your Expenses

Next, add up your projected expenses year by year. The amount you use in your analysis needs to include everything. Many times clients say something like, "That’s easy. Our expenses are $3,000 a month." So I ask, “Do you play golf? Do you give money to your church? To your children or grandchildren?” Almost everyone I question has overlooked one or more expenses.

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Look at the timing of your expenses, i.e. when exactly will you spend that money? Have you planned a big vacation to Europe right after you retire? Add the cost of the trip to that year’s expenses. Will you need a new car? Figure out when you’ll make that purchase, and put the cost in the appropriate year’s expenses. Want to refurbish your house? Ditto. Many people want to do all the things they didn't have time to do when they were working, and many of those things cost money. Don’t forget those costs when it comes time to plan your cash flow analysis.

Do Your Best, But Be Ready for Updates

By this point in the process, you’ll realize that financial planning is an art, not a science. You can’t predict your exact income or expenses. You may not get that part-time job. You may incur unexpected medical expenses. You may receive an inheritance. Start with your best guess, with the idea that you will review your plan annually, if not two to three times a year.

Once you have your best guesstimates laid out year by year, you’ll probably find that your planned cash flow is not consistent. The money you’ll spend on that long-awaited European vacation the year you retire will take your cash flow down a notch, while the proceeds from the lake house you plan to sell when you’re 70 will bump up the flow.

As you can see, at its core, cash flow analysis is a simple exercise. It’s also an incredibly important one that helps you recognize your cash flow needs and their timing. Once you know what costs you’ll need to cover when, you can plan to set money aside or use money from your investments to carry you through any lean times.

Planning can help you achieve a positive cash flow, which can help you attain happiness in retirement.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Ken Moraif, MBA, CFP®, CRPC®
CEO and Senior Adviser, Retirement Planners of America

Ken Moraif is the CEO and founder of Retirement Planners of America (RPOA), a Dallas-based wealth management and investment firm with over $3.58 billion in assets under management and serving 6,635 households in 48 states (as of Dec. 31, 2023).