Adjust your cash flow


Cash flow is an important indicator for how well your plan works. Ideally, you'll see a positive cash flow for every year in your plan.


If your overall cash flow is consistently positive, consider increasing your savings contributions to capture these funds and save them for later expenses.

  • Adjusting your before-retirement cash flow
    A negative cash flow before retirement means you are spending more money than you are earning. You should examine both your income and your expenses for the negative cash flow years.


    If the shortage is substantial (more than 5 percent of your income), you should try to remedy the problem by changing your plan.


    If the shortfall is due to special expenses that you've anticipated, then the Lifetime Planner sells taxable investments to pay for the shortfall. The net amount withdrawn is added to your cash flow to cover these expenses. Selling investments to fund uncommon expenses means that the Planner reduces the estimated value of your investments enough to cover the shortfall and pay any taxes incurred when you sell the investments.


    However, if some or all of the shortfall is due solely to everyday expenses like taxes, living expenses, and savings, then your plan may be unrealistic. You could be living beyond your means and may not have enough money to both pay expenses and save for retirement.


    In the Plan: Results snapshot, the Lifetime Planner warns you about the shortfall. You may decide to ignore a shortfall because it is small enough that you feel you can cover it by reducing your living expenses.
  • Suggestions for increasing your income before retirement
    • Don't do anything. If the cash flow shortage is only a year or two, or a small percentage of your income, you probably don't need to worry about it. Just note that the affected year (or years) will be particularly tight for money.

    • Consider a second job.

    • Sell an asset. Sell some of those items you may not really need and invest the proceeds.

    • Trade down your home for a cheaper one. Smaller mortgage payments mean more money in the bank to withdraw.

    • Take out a personal loan. You can increase your income for a particular year in the future by taking out a personal loan in the problem year and using the proceeds to cover your cash flow shortage. This is common when sending children to college.

    • Check for other income you can count on that you haven't entered in your plan.
  • Adjusting your after-retirement cash flow
    If your cash flow at the end of the year is greater than $0, then the Lifetime Planner reinvests any portion of your minimum withdrawal that doesn't go to pay expenses. This surplus has to be reinvested in taxable investments.


    During retirement, your cash flow may go to zero because you are withdrawing just enough from retirement savings to pay living expenses. (Retirement expenses begin on the earliest retirement date in your plan. This may be your retirement date or your spouse's.)


    If your cash flow is less than $0, it means that you don't have enough money from retirement investments and income to live on and your plan fails. If your portfolios have money, the Lifetime Planner will withdraw that money to cover your retirement expenses.


    If you don't have enough taxable investments, the Lifetime Planner sells tax-deferred investments. Whenever the Planner sells investments, it sells enough to cover the cash shortfall and the taxes incurred due to the sale. Note that your portfolios continue to grow due to the rate of return you receive on them, and due to any contributions you may make. The net amount withdrawn is added to your cash flow to bring it to $0.
  • Suggestions for increasing your income after retirement
    • The best way to increase your after-retirement income is to save more now. Saving more now will increase your retirement portfolios and make more money available in the form of withdrawal income for retirement.

    • Consider a part time job.

    • Retire later. The later you retire, the longer you save for retirement.

    • Sell your home and rent or live in a smaller home.

    • Sell assets.  
  • Suggestions for decreasing your expenses
    • Reduce your overall living expenses. If you consistently live beyond your means, you may always have cash flow problems.

    • Reduce your mortgage payments. A less expensive house means lower mortgage payments.

    • Don't buy a larger house or wait until later to buy it. If the source of your cash flow problem is the down payment on a house or larger mortgage payments, wait a few more years before buying the home.

    • Save less. Believe it or not, maybe you need to save less. Consider doing this if you are fully funded in retirement. By saving a little bit less, you improve your cash flow before retirement, but harm your cash flow after retirement. This is a balancing act that you will have to play with until you find the correct balance.

    • Reduce special expenses. If the cause of your shortage is a special expense, like sending your children to college, find a way to reduce or eliminate the expense. The College Planner helps you estimate the costs of sending your children to college.
  • Your yearly net worth
    After the Lifetime Planner determines your cash flow for the year, it calculates your net worth at the end of the year.


    To do this, the Planner increases the value of your home and assets by the percent annual increases you've entered. It then increases the value of your investments by the percent of annual return you selected. Then it adds the savings you plan to make during the year.


    When the Lifetime Planner adds to your savings, it simulates saving monthly.


    The Lifetime Planner reinvests all gains each year. For taxable savings, it reinvests the gain after tax. You can set the percentage of taxable investment return that will be subject to taxes in the Rate of return option. There are no taxes for tax-deferred savings, so the entire gain from tax-deferred savings plans is reinvested.


    The Lifetime Planner then subtracts the balance of any loans in effect that year to determine your net worth. So your net worth is simply equal to: investments plus home plus assets minus loans.


    The Lifetime Planner then calculates the cash flow and net worth for the next year.

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