Managing Cash Flow in Retirement

Whatever the size of your nest egg, retirement will likely mean big changes in your financial life.

Sources of income can shift, as can expenses. And financial priorities often change as you move from saving for retirement to generating a “paycheck” from your hard-earned retirement savings.

Retirement is a milestone and a good opportunity to start fresh. Taking a clean-slate approach could make dealing with your finances easier, more efficient, and cheaper if you can consolidate accounts and eliminate fees.

Managing your retirement "paycheck"

To start, consider the ways that retirement can change cash flow. Your weekly or biweekly paycheck may be replaced by income from a variety of sources, including Social Security benefits, pension distributions, and annuity payments. Some retirees may even generate income from part-time employment or sales of assets.

All of this means that money is arriving in varying ways, in varying amounts, and on very different schedules. To manage these income sources efficiently, you can set up direct deposit services, or use a financial institution that lets you make a deposit by scanning or snapping a photo of a check with a smart phone.

Spending patterns will also likely change, reflecting both your new lifestyle and shifting financial responsibilities. Often when you retire, nothing is being withheld for state and federal income taxes, so you may be responsible for any quarterly estimated taxes. Likewise, some retirees may have to pay health care and other insurance premiums directly to the insurance carrier(s). Some retirees may also find they are traveling more or living in dual residences. All of these situations can make monthly bill-paying even more complicated.

Take advantage of everyday financial management tools over the phone, online, or via a mobile device. These days, technology makes it easy for people to effectively manage their regular financial transactions from anywhere. Doing so can eliminate worries about paying the mortgage bill no matter where you happen to be.

Consider organizing and creating specific uses for your cash

At any point in your retirement, your income streams may be producing more cash than you are spending. So you’ll want to think about how to continue to produce income on that cash. When investing, be sure to make liquidity—how quickly you need access to your cash—a central consideration.

In general, the more comfortable you are with risk and the less liquidity you need, the more yield you can afford to pursue. One approach to consider is to bucket cash for different short- and longer-term needs, such as living expenses, short-term goals, and emergencies.

Here are some ways to implement each:

  • Living expenses: You’ll want to have a portion of your savings easily accessible and liquid for paying everyday living expenses, such as groceries, utility bills, and insurance premiums. For these needs, you may want to consider keeping cash or cash equivalents invested in lower-risk, highly liquid investments, such as money market funds or short-term Treasury bills.
  • Short-term savings goals: If you have short-term savings goals, such as a car purchase or a dream vacation, you may want to consider investing in low-risk vehicles, such as Treasury bonds and FDIC-insured CDs with maturities that correspond to the date you need the money.
  • Emergencies: You should also consider setting up an emergency fund where you keep six months of expenses liquid for unexpected events, like a roof that needs to be replaced or another hefty bill you did not anticipate. One size, however, does not fit all. You will need to take into account your expenses, liabilities, and other individual circumstances in order to get a dollar figure that suits your needs. Consider investing this money in a mix of highly liquid accounts, such as money market funds, and less liquid options, such as CDs or conservative bond funds.

How to tie it all together

The key is to make sure that you can easily get at, move, and invest your money according to your needs, and without fees. Some people opt to consolidate by putting all their funds into a group of accounts with a single provider, so that money can move easily from one account to another. Making periodic withdrawals can help you create a “just-in-time” income stream and allow remaining assets to produce potential earnings until you need more cash.

Make sure you have a clear picture of your finances

Finally, the retirement cash management system you create should offer a comprehensive view of your finances. Being able to get concise, up-to-date reports on your cash balances, transactions, and assets is a basic requirement and can help prevent unpleasant cash flow surprises.

A cash management system now can pay off in the future

Putting a good cash management system in place now can make it easier for you to handle your finances as you get older. Make sure you record the specifics, such as direct deposits and automatic transfer schedules, so if you are unable to access your account(s), a properly authorized spouse or third party can make changes as necessary.

Taking the time to think through the “what ifs” of future cash management also means that you get to make the decisions about how you’ll be using your financial resources during a retirement that may stretch 30 years or more.



Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

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