Cash flow in retirement

My parents are getting their financial ducks in a row to enter retirement. The irony is that each of them retired from a job a decade ago. Since then, my mom has had three more full-time jobs, and she is officially retiring again, with the plan of working part-time going forward.

My mom asked me to figure out that retirement stuff. They had RMDs on the horizon and social security decisions to make. After reading a review of Jane Bryant Quinn’s Make Your Money Last, I ordered a copy, and it sat on my bookshelf for months. When I finally read it, I was amazed. The book has more than paid for itself with the information it contained.

Without a full-time paycheck coming in, where does the money come from? Ideally a variety of sources: social security, pensions, investments, and maybe part-time work. This flow chart shows a model for income in retirement:

cash flow in retirement

Social security and pension checks are received monthly via direct deposit. For many people, this will not cover all living expenses, and that’s where a monthly retirement paycheck comes in. This paycheck is really a transfer of cash from a bucket that could cover 2-3 years of the gap between expenses and guaranteed income. This bucket is replenished by RMDs and withdrawals from a brokerage firm (i.e., 401k, IRA, investment accounts). The extra source of cash is a cruise fund, or more generally, a splurge account.

Next week I will run through some scenarios with numbers.