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What you should know about cash management in retirement

Managing your retirement is comparable to managing your own small business. You fund it, set realistic goals, see that they are attained, stretch the dollar, buy the deals, control the profits, monitor the results, take a paycheck and pay your taxes. You work at it every day because you are the money manager with an eye on longevity.

With this extraordinary position also comes an exceptional benefit: support and guidance from your financial advisor.  Initially, your advisor laid the groundwork for your lifetime income stream. It’s in your best interest, and that of the “business,” to continue investing for your ultimate retirement adventure.

Developing your “business” plan

By definition, cash management is the collecting, managing and investing of cash. Basically, it is an accounting of what comes in (receivables) and what goes out (payables). This time, it’s on your shoulders. It’s your cash and your gain.

In advance of retirement, your decision-making and goal setting should be aimed at achieving the type of retirement you and your partner want to enjoy. So, if you haven’t done so already, carefully prepare a written plan to answer these questions:

-          What is my (our) vision for a successful retirement?

-          How much investment capital will I (we) need to get started?

-          What goals must I (we) set to make this work?

-          How will I (we) meet these goals?

This plan, albeit simpler than a real business plan, is about definition. It has merit because like all successful entrepreneurs, you must define your course of action and recognize the need for adequate capital to launch, maintain and follow the plan to ensure its success for years to come.

Incoming and outgoing cash control

All incoming cash flow from outside sources arriving at various times should have a central location for multiple checks to funnel through. A key component of your retirement portfolio is having a centralized asset account, also known as a cash management account, for various forms of income like Social Security, pension and income from assets in a single location.

Typically, bank direct deposit works, but don’t rule out remote deposit if you prefer doing it that way. Snap a photo or scan the checks with your phone for depositing.

Budgeting, and managing that budget, is both your protection and discipline. All outgoing cash flow consists of fixed and regular expenses. There are some you might eliminate, like a mortgage, second car and business clothing. So whether you write checks or use electronic banking, have the flexibility to easily manage your payments from wherever you are using your laptop or smartphone.

Managing the management

Peter Drucker, author, and one of the most widely-known and influential thinkers on management, said, "Management is doing things right; leadership is doing the right things." As manager, your task is to steer the efforts and activities in the direction defined by you and your partner toward your mission, vision, goals and objectives you’ve defined, and these important considerations:

• Pay yourself first

• Maintain six-to-twelve months’ expenses in a savings account for emergencies

• Build up a cushion of cash reserves to equal two-to-five years’ living expenses. It should, however, be less than 25 percent of your portfolio’s value

• Consider a jointly, agreed-upon percentage of income to invest every month to let the power of compounding work for you

• Plan out your cash flow needs and choose investments with an appropriate risk level to match those needs 

• Manage your taxes by carefully timing your withdrawals and taking advantage of all tax breaks for those 65 and older

Debt Avoidance

“There is scarcely anything that drags a person down as debt,” P.T. Barnum said. Create a realistic spending plan that details when and how you’ll make large purchases, like buying a new car. You don’t want to finance it, so as some experts suggest, before you retire, or even when you retire, buy a bond or a CD for the sole purpose of purchasing the car once the bond or CD matures. You want liquidity, and not a large monthly payment hanging over your head.

As you know, most Americans are woefully illiquid, and have created unmanageable credit card debt often brought on after a major event they didn’t have the cash for. An emergency fund would help satisfy the obligation, as earmarking an investment for buying a car or putting on a new roof would, but many people are not wired that way, thinking that outgoing comes from only one available source – credit.  A recent study revealed that 39 million Americans have been in credit card debt for at least two years, some even longer. And credit card debt can haunt you forever.

Your Hefren-Tillotson financial advisor will provide suggestions for short- and long-term investment options, stocks, bonds, as well as index funds to guard against inflation’s dollar erosion. Managing assets and making them grow are cornerstones of our long history of meticulous planning. Contact your advisor today for more information.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.
Hefren-Tillotson

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Hefren-Tillotson Inc. is a leading diversified financial services firm providing investment and retirement plan management and comprehensive, financial planning through MASTERPLAN® for individuals and businesses. The firm’s wealth management services are administered by Certified Financial Planner (CFP) professionals, Chartered Financial Analyst (CFA) Charter holders, attorneys, Chartered Life Underwriters, and CPA/PFS’s. Hefren-Tillotson offers corporate services including 401(k) retirement planning, executive financial counseling, fiduciary reviews and workplace financial planning seminars. Founded in 1948, the firm is headquartered in Pittsburgh and has offices located in Pittsburgh, Butler, Greensburg, North Hills, and South Hills. MEMBER SIPC.