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September 26, 2022 | Article | 5 min

Peace of mind is what anyone wants when they look ahead towards their retirement. They want to know they can live comfortably, cover their expenses with ease and have some cash in the bank for adventures. These are, afterall, what your golden years are for! Read more here as we discuss ways in which you can increase your cash flow in retirement.

Looking ahead toward retirement can either be a time of planning adventures and quality leisure time, or one of worrying about the unexpected and whether your nest egg will cover your needs. As you move from actively saving toward retirement to making those savings work harder for you, your goals will reflect those changing financial priorities. Having a comfortable cash cushion can give you some extra peace of mind as unexpected expenses occur. Here are some ways to maximize your cash flow in retirement.

Person sitting on couch strategizing about their retirement plan

Cash Flow vs. Liquidity Balance

Cash flow calculated by a company often consists of a list of both tangible and intangible income and expenses. For example, income might be sales based on credit, not the actual amount of money entering the business coffers; expenses also can include intangibles such as depreciation and bad debts. Those aren’t items that get paid out with company funds—they’re tax write-offs.

Cash flow for your retirement, on the other hand, consists exclusively of tangible income and expenses. You’re only counting actual funds that come into your bank account and paid-out items like living expenses. Thus, cash flow in retirement becomes the barometer of your financial health.

Liquidity, in contrast, is your ability to quickly turn assets into cash. If you have enough cash and assets to pay all your debts, your holdings are considered liquid; if you don’t, then you have liquidity issues. To avoid this, you must be aware of any issues that could impact your retirement.

One place to start is by calculating your liquidity ratio. There are three types of liquidity ratios to keep tabs on: current, quick and cash. Your current liquidity ratio measures your ability to meet financial obligations for the current year. You can total it up with this simple formula: current assets / current liabilities = current ratio.

Your quick liquidity ratio performs similarly, but calculates from cash, marketable securities and any income payments coming in. Use the following formula: (cash + securities + income) / current liabilities = quick ratio.

Finally, your cash liquidity ratio only uses cash on hand. That formula goes as follows: cash / current liabilities = cash ratio.

A higher liquidity ratio means that you can meet all of your current financial obligations. Consider reducing expenses to boost your liquidity ratio and cash flow in retirement.

Consider Cash Flow When Taking Required Minimum Distributions

Once you reach 72, your 401(k) and IRA accounts will also begin adding to your retirement cash flow, in the form of required minimum distributions (RMDs). These RMDs are the minimum amount you must withdraw from these accounts once you reach retirement age—and depending on what type of account you have, the tax and cash flow implications may vary.

For example, traditional IRA and 401(k) funds come from pre-tax income. When you withdraw money from them, those funds are added to your yearly income—and added to the pool of taxable money for the year. If you have a higher tax bill in a particular year, consider delaying disbursements (or taking only the minimum required). In years with lower expected taxes, adding those disbursements as income will not hit your wallet as hard.

On the other hand, you fund Roth IRA and 401(k) accounts, with post-tax dollars. You can take disbursements at any time without affecting your tax obligations.

Manage your RMDs by either taking the full yearly amount from the smallest IRA or 401k first or by pulling sums from each of your accounts. You can take the same amount from each one, or pull varying amounts—as long as the total is at least your RMD for the year.

In addition, schedule RMDs to benefit you. Some people will take monthly distributions in order to have a healthy cash flow to pay expenses, pay down debt, make charitable donations, or funnel into other retirement savings or investment options. Others prefer an annual distribution, either early in the year or at the end. Do whatever works most in your favor. And remember, you can always take more than the minimum distribution if you choose.

Explore Non-traditional Investments

Two clients meeting and discussing retirement plan with a professional

Investing in high-yield opportunities isn’t a good idea for retirement. Recouping a poor investment can prove much more difficult when you are no longer working. There are, however, other non-traditional investments that offer more secure yields. Consider investing in more stable opportunities such as hedge funds, managed futures, private equity, venture capital, real estate, and collectibles such as antiques, art, and wine.

However, keep in mind that returns on alternative investments can prove difficult to measure consistently, due to the lack of standardized benchmarks. Collectables and even real estate are reflections of not just market value, but also varying collector preferences.

Be Strategic With Social Security

Many are tempted to fully retire and tap into their Social Security earnings as soon as possible. However, this is not always the best course of action. Delaying slightly can actually increase your payout down the line. If you work until age 70, you will receive a percentage credit for delaying your application, boosting your monthly benefit significantly.

If you are married or divorced (but have been or were married for more than ten years), you can also claim spousal payments. This means that the lower-earning spouse can claim up to 50% of their spouse’s benefit.

Keep your retirement earnings from work within income caps, especially if you applied for Social Security before the full retirement age. Check your state tax agency to find out what your income cap is for Social Security taxation, as it can vary across state lines.

Organize Your Retirement Cash Flow Today

Maximizing your cash flow in retirement requires careful planning. You need to make sure you’ve carefully considered a host of revenue streams, including savings, investments, 401ks, IRAs, non-traditional investment sources, and Social Security—and how they all interplay with one another.

Navigating these complexities is made easier with the guidance of a knowledgeable financial partner—a partner like HTLF Retirement Plan Services. If you’re beginning your retirement planning (or just need some extra advice) sit down with the experts at HTLF Retirement Plan Services today.

Heartland Retirement Plan Services are offered through Dubuque Bank and Trust Company. The information provided herein is general in nature and is not intended to be nor should be construed as specific investment, legal or tax advice. The factual information has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Heartland Retirement Plan Services makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, it. Products offered through Heartland Retirement Plan Services are not FDIC insured, are not bank guaranteed and may lose value, unless otherwise noted.