Cash flow in retirement. What's your system?

[goodenoughinvestor]

Looking ahead, I'm wondering how those of you who are retired manage cash flow? What's your system? Do you designate a monthly amount that you transfer from investment funds to a checking account? Do you have a separate "emergency fund?" Just hoping to get some ideas of what most savvy investors do once they become "decumulators." Thanks

[Sidney]

Most of our expenses are on credit cards or direct debit.

The credit cards close the month during the last week of the month so around the end of the month, I know what those bills look like. The DDs all hit the bank during the first week of the month.

At the end of the month I transfer money from Vanguard to the bank to cover the next month. I know what the hit will be on the credit cards and the DDs and I can pretty much ballpark the small other stuff so I don't need to keep a lot of cash in the bank.

[ddunca1944]

Our income is from pensions (automatically deposited on the 1st of the month) and SS (automatically deposited on the 4th Wed of the month). We put 99% of spending on 2 reward cards Most monthly bills are set to be paid automatically onto one of the cards. The cards are set to be paid automatically from the checking account.

I use YNAB (You Need A Budget) software to track and manage. On the 4th Wed when the SS deposit shows up, it is labeled "Income: next month" and is set aside for the following month's expenses. On the 1st, the pension deposits are entered as "Income: this month" so on the 1st I set the budget for the month. During the month, I use YNAB to keep tabs on the discretionary spending. I also verify that the automatic transactions have been entered correctly.

I have some small emergency funds (out of pocket medical expenses, emergency vet expenses, auto repair - that sort of thing. In YNAB I call them "Rainy Day" funds.
When there is an expense that is unexpected or larger than usual, I will transfer funds from the retirement accounts to cover it.

[The Wizard]

I've arranged to have my monthly annuity payment happen on the first of each month and a smaller systematic withdrawal (in lieu of SS) around the 15th of each month. These both come from tax sheltered accounts and so are fully taxable now.
Both of these are auto-deposited to my checking account.

I maintain a certain minimum amount in my checking account from month to month of a few thousand just because I want to, no minimum is required by the CU.
And lately, I've also taken to paying off the balance on the one credit card I generally use on both the 1st and the 16th of each month, regardless of when the due date is.

Most months I have excess income, so that goes to pay down additional principal on two small loans I still have.
Once those loans are gone, I'll probably throw the excess into my Vanguard taxable account and/or use it to pay for Roth conversions.
Either that or buy that new pickup truck...

[countdown]

Ddunca.....what is 'YNAB' you need a budget? And how is it different/better than a Quickbooks program? Just curious.

[ddunca1944]

Ddunca.....what is 'YNAB' you need a budget? And how is it different/better than a Quickbooks program? Just curious.

It's budgeting software - specifically for home budgets.
http://www.youneedabudget.com/

I used to use Quicken, but like this better.

[scrabbler1]

I am an early retiree so my income is solely from the monthly divdend distributions from a large bond fund. I allow for a buffer or cushion in case my expenses go up from month to month or the bond fund's dividends fall a little bit. I do have to plan ahead because some of my expenses are large and not monthly (car insurance, estimated income taxes) so I have to make sure I carry over a surplus into a month those larger expenses arise.

[bertilak]

SS and Pension deposited into checking account. I just pay bills as they come in. Luckily, my pension and SS are a bit more than what is needed so I don't have to tap into my savings/investments.

I also manage my 92 year-old mother. Her pension and SS get deposited into her Vanguard account's MM fund. In her case I have all dividends taken as cash and rolled into the mm fund. Since her income is less steady than mine (depending on those dividends as well as the very regular SS and pension) I keep a balance in the MM fund to pay two-three months expenses. This balance fluctuates and i replenish it occasionally by selling off investments. I can go for months w/o having to do that. Her VG account is set up a an Advantage account, meaning I have check-writing capabilities so pay her bills that way. Actually, I use Quicken to pay the bills. It produces checks (or electronic funds transfers) written against her VG account.

So those are the mechanics. My "budgeting" is pretty passive. I know what all my bills will be and they get entered into Quicken automatically (by Quicken itself) 35 days in advance. So I just keep an eye on the next 30 day's balance in the Quicken register.

[Texas hold em71]

Most of our expenses are on credit cards or direct debit.

The credit cards close the month during the last week of the month so around the end of the month, I know what those bills look like. The DDs all hit the bank during the first week of the month.

At the end of the month I transfer money from Vanguard to the bank to cover the next month. I know what the hit will be on the credit cards and the DDs and I can pretty much ballpark the small other stuff so I don't need to keep a lot of cash in the bank.

When I read all these news stories about retirees with credit card debt, I wonder how many of them are using your method and just racking up rewards?

[nanosour]

I too struggled with this question as I approached my early retirement. Although there are many of ways to skin a cat, I settled on this method of decumulation.

I have 2 years of expenses in Ally bank earning .86% and have a monthly amount automatically transferred to my checking account on the 1st of every month. All expenses come from the checking account either by BillPay, Debit or Credit card purchase. I track the balance of this account through daily downloads to Quicken and via Mint.

All other assets are at Vanguard in simple lazy portfolio with AA of 60/40. Each year I rebalance and will transfer a years worth of expenses to the Ally account to replenish after a years' withdrawals.

Taxes can complicate this considerably for some individuals.

[dbr]

Most of our expenses are on credit cards or direct debit.

The credit cards close the month during the last week of the month so around the end of the month, I know what those bills look like. The DDs all hit the bank during the first week of the month.

At the end of the month I transfer money from Vanguard to the bank to cover the next month. I know what the hit will be on the credit cards and the DDs and I can pretty much ballpark the small other stuff so I don't need to keep a lot of cash in the bank.

When I read all these news stories about retirees with credit card debt, I wonder how many of them are using your method and just racking up rewards?

Almost the entirety of our monthly expenditures are on credit cards that are paid off when due each month. This is not credit card debt. Debt would be balances that are carried from month to month and incur interest. And, yes, all of the credit cards have rewards of one sort or another.

[Texas hold em71]

Most of our expenses are on credit cards or direct debit.

The credit cards close the month during the last week of the month so around the end of the month, I know what those bills look like. The DDs all hit the bank during the first week of the month.

At the end of the month I transfer money from Vanguard to the bank to cover the next month. I know what the hit will be on the credit cards and the DDs and I can pretty much ballpark the small other stuff so I don't need to keep a lot of cash in the bank.

When I read all these news stories about retirees with credit card debt, I wonder how many of them are using your method and just racking up rewards?

Almost the entirety of our monthly expenditures are on credit cards that are paid off when due each month. This is not credit card debt. Debt would be balances that are carried from month to month and incur interest. And, yes, all of the credit cards have rewards of one sort or another.

Agreed. I do the same as a non-retiree. I am going to pay more attention to the new stories now to see if they are distinguishing between the two.

[earlyout]

Our SS checks are deposited into the checking account and this is enough to cover routine monthly expenses. If there are large bills such as annual property taxes, a large purchase or travel expense, I'll transfer enough funds from our taxable investment account (selling whatever has done well recently and needs to be rebalanced) sufficient to pay for extraordinary expense items. RMDs, after withholding for that years income taxes, are transferred to a taxable investment account. I try to not make it any more complicated.

[dbr]

Maybe a better question is what kind of problems has anyone faced in the mechanics of retirement spending.

I am not sure I can think of any, but maybe someone has experienced a helpful to know about gotcha out there.

[retiredjg]

Looking ahead, I'm wondering how those of you who are retired manage cash flow? What's your system? Do you designate a monthly amount that you transfer from investment funds to a checking account? Do you have a separate "emergency fund?"

This is how I started out - early in the year, I sold enough stocks and bonds for a year's worth of spending - I put that money into money market and transferred a set amount to my checking account each month. Pension and SS are direct deposited. Paid the bills each month the old fashioned way (checks) and later converted to online bill pay. That pretty much worked for me.

I'm currently in a state of transition (sold my home, now a full-time RVer). I've only be doing this about 4 months so expenses are not yet stable but they are headed that way if I don't scrape any more trees, leading to expensive roof repair. Now paying almost everything on credit cards (one for gas, one for other expenses) and pay the credit cards on bill pay at the first of the month.

I don't think much changes before and after retirement, at least not before RMDs. You'll still have an income stream, but it will be pension and/or SS and/or 401k/IRA withdrawals instead of a salary. You'll still have bills to pay and you can choose any method you want for that. Some things can be simplified when you stop working and that's nice.

I suppose the biggest question is whether to hold a chunk of money in cash. Some folks hold several years worth of expenses in cash. The thought is to hold enough cash to get you through a crash (5 to 7 years). That's safe but it is also money that is not working. I considered it and decided a year's worth of cash is enough for me. And I don't even do that all the time.

You'll just have to see what makes you most comfortable.

[joe8d]

I use my local bank checking account. My SS, Pension and P/T job earnings are direct deposited into it. My outflows are done by auto withdrawal for bills and Debit Card purchases from the same account.I have no need to use savings,as expenses are more than covered by this.

[manwithnoname]

Looking ahead, I'm wondering how those of you who are retired manage cash flow? What's your system? Do you designate a monthly amount that you transfer from investment funds to a checking account? Do you have a separate "emergency fund?" Just hoping to get some ideas of what most savvy investors do once they become "decumulators." Thanks

SS is deposited to checking account.

Additional income needed to pay expenses is transferred from investment account to checking account on an as needed basis. No need for a budget or emergency fund since investment income plus SS exceeds expenses.

Doesn't get any simpler than this.

[btenny]

A good portion of our income is from SS and pensions. Those are direct deposited to our accounts and most of our bills are auto paid out of those accounts. But we also spend some money from our taxable accounts. I keep 3+ years of this spending money in cash and short/limited term muni funds. I draw $$ from this fund about every 2-3 months as needed. I transfer that $$ to our checking account to met our needs. I rebalance all of my accounts every year and add to my muni funds as needed. I usually make some withdrawals from our IRAs at that same time. I have been doing this manually for years to make sure we stayed under our annual budget.

But as I get older and our finances are more secure I may put some of these withdrawals on automatic monthly transfer.

[midareff]

Looking ahead, I'm wondering how those of you who are retired manage cash flow? What's your system? Do you designate a monthly amount that you transfer from investment funds to a checking account? Do you have a separate "emergency fund?" Just hoping to get some ideas of what most savvy investors do once they become "decumulators." Thanks

I use an Ally checking and an Ally MM to handle this. VG equity quarterly dividends, a small fixed monthly drawdown from my Roth and monthly dividends from Limited Term Muni's go to MM. MM pays IRS via EFTPS quarterly, car and apartment insurance and property tax on the condo. I use it (MM) as a combination escrow for these expenses and also keep about a year and a half to two years of those expenses as an extra balance cushion on hand. When I am doing the math projections for incoming income from the funds I use .88 X the M* prior 12 month dividend percentages times the fund balances, as a check on what that annual funding flow should provide. I use Taxcaster for the IRS projections and set the EFTPS quarterly at the beginning of the year. Pension and SS (combined 80+ % of monthly) along with a drawdown from IT Tax-Exempt go to Ally checking and handle everything else there from Medicare supplements, condo maintenance, credit cards, cable, internet, phone bills, gas and grocery credit cards, etc. Everything is on auto pay and I just monitor the goings-on in Ally checking (and the cards) via online banking. between oversight of the credit cards, banking, etc., it's not more than 1o-12 minutes a week to have a look at everything, if that long. My total drawdown rate is running about 2.6% of portfolio, and is more than we need so cash is transferred to and accumulates in MM. When/if the excess gets over a certain amount I put some back into Munis. When the AA gets too high in equities I rebalance back into munis. Have not had to go the other way in the last few years but am sure it will happen sooner or later. When I have to start drawing down my TIRA the plan is to use those RMD's to keep funding the munis, and keep drawing from them.

The spreadsheets I use to monitor assets provides lots of data for me and my excel budget books lift the flow numbers from the asset books and show me all my incoming and outgoing along with end of month projected changes. I retired in April of 2012 and used excel extensively at work so this was a natural extension for me.

I'm sure there are as many different ways as there are individuals doing this and there is no right or wrong, it's just what works for you and what you can keep track of comfortably and easily. This is what works for me ....... hope it helps.

[dbr]

I would add that the "system" used during retirement probably does not have much different in general mechanics than the "system" one might have used when employed, as far as managing cash flow is concerned.

[ddunca1944]

I would add that the "system" used during retirement probably does not have much different in general mechanics than the "system" one might have used when employed, as far as managing cash flow is concerned.

+1
My "system" really isn't any different. The "paycheck" sources are different and I am much more mindful of the need to keep spending within income. The biggest difference, for me, is the desire to keep it as simple as possible in the event that I lose some of my cognitive abilities....

[Dandy]

I have a year's worth of draw down in an online savings account and have a fixed dollar transferred automatically each month to my no fee checking account at a local bank. I have the second year money in a CD that matures before the savings account runs dry so I can replenish it.

I have money In Ltd term tax exempt and Intermediate term tax exempt which should enable me to fund my residual expenses until I collect my SS at age 70. At age 70 I will almost be able to fund monthly retirement expenses without drawdown from my investments.

Dividends and cap gains from my taxable investments are added to either the tax exempt funds or the on line savings account.

I don't have a separate vehicle for an emergency fund. I do have 4+ years in an IRA CD ladder, and a money market deposit account that I put savings (left over at the end of the month) to fund some things like home improvements and repairs. I used some of it to buy a new car.

I have a very attractive home equity line of credit that I sometimes use as temporary funding needs and often repay it from any money left over at the end of the month. I do this instead of selling taxable investments which have sizeable taxable gains.

I am planning to convert IRA money to Roth IRA each year for the next 5 years. This will reduce my RMD which is likely to exceed my needs even after the Roth conversions.

I probably over-deduct withholding on pension and wife's SS and have VG withhold Federal on Divs an Cap gains on my taxable accounts.
This prevents surprises at tax time and any refund is used to add to the on line savings account. If interest rates were higher I might lower my withholding.

[Hexdump]

Our income is from pensions (automatically deposited on the 1st of the month) and SS (automatically deposited on the 4th Wed of the month). We put 99% of spending on 2 reward cards Most monthly bills are set to be paid automatically onto one of the cards. The cards are set to be paid automatically from the checking account.

I use YNAB (You Need A Budget) software to track and manage. On the 4th Wed when the SS deposit shows up, it is labeled "Income: next month" and is set aside for the following month's expenses. On the 1st, the pension deposits are entered as "Income: this month" so on the 1st I set the budget for the month. During the month, I use YNAB to keep tabs on the discretionary spending. I also verify that the automatic transactions have been entered correctly.

I have some small emergency funds (out of pocket medical expenses, emergency vet expenses, auto repair - that sort of thing. In YNAB I call them "Rainy Day" funds.
When there is an expense that is unexpected or larger than usual, I will transfer funds from the retirement accounts to cover it.

Ddunca1944, this is interesting to me as I am just now testing YNAB.
Do you use some additional software to keep track of your investments ?

Thanks

[ddunca1944]

Our income is from pensions (automatically deposited on the 1st of the month) and SS (automatically deposited on the 4th Wed of the month). We put 99% of spending on 2 reward cards Most monthly bills are set to be paid automatically onto one of the cards. The cards are set to be paid automatically from the checking account.

I use YNAB (You Need A Budget) software to track and manage. On the 4th Wed when the SS deposit shows up, it is labeled "Income: next month" and is set aside for the following month's expenses. On the 1st, the pension deposits are entered as "Income: this month" so on the 1st I set the budget for the month. During the month, I use YNAB to keep tabs on the discretionary spending. I also verify that the automatic transactions have been entered correctly.

I have some small emergency funds (out of pocket medical expenses, emergency vet expenses, auto repair - that sort of thing. In YNAB I call them "Rainy Day" funds.
When there is an expense that is unexpected or larger than usual, I will transfer funds from the retirement accounts to cover it.

Ddunca1944, this is interesting to me as I am just now testing YNAB.
Do you use some additional software to keep track of your investments ?

Thanks

I don't use YNAB to monitor our investments. I use it strictly to budget our net monthly income. Our investments are pretty simple (His T-IRA, my T-IRA, my R-IRA and a joint taxable account which is limited to 2 funds. I just download the Vanguard statement in pdf form and save that to the computer.

[john94549]

I am retired, my wife is not. We just have everything direct-deposited. I was a bit leery at first, assuming everybody would screw it up, but I've found it wonderful. It appears that once the computers have it figured out, it's easier than mail => bank => deposit => hold => credit => withdraw (or write a check).

That said, I remember the "good old days" when I took my paycheck to the bank, deposited it, then withdrew a few bucks for "walking-around-money".