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Bonacorsi Wealth Management

Your Plan for Retirement-Cash Flow

Preparing for retirement takes a bit of thought and a bit of work.

Think about it, once you leave your job, the income you built your life around stops, the health insurance you were receiving through your employer stops, and you might find your ability to save money is a lot tougher if not impossible.

You like your lifestyle and hate to give anything up but, will you be able to continue based on your retirement resources.

Creating a financial plan for your retirement, implementing, reviewing and adjusting your plan prior to and through your retirement can help to keep you on track and identify strengths and weaknesses in your finances.

The plan should start with goals, you have worked hard to reach this point and along the way, have had thoughts of what you would do if you retired, now is the time to start putting those goals to paper.

Creating a cash flow scenario will help you understand how your income stacks up against your expenses. First, consider your guaranteed income, Social Security, pension or annuity income and consider the amount and timing of the source. Are there advantages to delaying for a higher payout? Can you afford to defer to that later date? Is it critical to begin immediately?

Next, calculate your anticipated monthly expenses include all your expenses, don’t forget your health insurance costs that you will assume at retirement. Term loans like mortgages, car payments and loans have end dates. You will need to build those into your plan. If the expense is not a fixed expense for a term, it can be subject to inflation and over time you will be paying more for the same goods and services so an inflation factor should be considered.

Does your guaranteed income flow cover your monthly expenses? If not, where will the deficit come from will you continue to work to cover the shortfall or do you have accounts to draw from? Hopefully, you have saved money through an employer retirement account like a 401K, an Individual Retirement Account, a Roth IRA, a brokerage account, and or cash savings.

As you draw down on your account, keep in mind the tax consequences of certain accounts, retirement accounts (401k’s, IRA’s etc.) are taxed as income at your income rate.  Roth IRA’s provide tax-free income if held for 5 years and age 59.5 and older.  Sales from non-retirement brokerage accounts might result in long or short-term capital gains.

Depending on how much you have been able to save and the rate of return on the account, you might have enough to draw down your accounts to meet your monthly shortfall if not other considerations will be necessary.

Cash flow planning is just one piece of a financial plan.  Investment planning, tax planning, insurance planning, estate planning all interconnect and come together to provide you a guide as you move through the various stages of life.

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