The Importance of Starting Off Strong in Retirement

The first year of retirement can have a lasting impact on your finances.

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You only get one chance at retirement, which is why it’s important to start off strong. As with any major life change, it is the first year or so that sets the pace for the rest of your transition. Here is how to plan for a strong start to retirement that will help you make it through your golden years with minimal financial worries.

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Cash flow is an important indicator of financial health. When most people think about retirement planning, they think in terms of saving and investing to accumulate a large nest egg. The total amount of money you have saved is very important, but your cash flow is possibly more important than your nest egg, especially when you enter retirement. Cash flow represents a continuous stream of income, whereas a nest egg is a finite resource which has the potential to be exhausted. Sources of cash flow can include pensions, Social Security, annuities, investments, rental property, military retirement, part-time jobs, and other sources of income.

How much money will you need in retirement? Many financial experts recommend estimating that your retirement expenses will be equal to 80 percent of your pre-retirement expenses. But this number will not be accurate for everyone’s retirement plan. If you are already living paycheck to paycheck on your working income, then you may be in for a rude awakening when you enter retirement with the same expenses. You should analyze your budget including your cash flow and expenses before plugging 80 percent into your assumptions.

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Living beyond your means can jeopardize your retirement. Most people earn more money during their working career than they do in retirement. If you anticipate your income dropping when you enter retirement, then it is a good idea to get your financial house in order before you decide to retire. Credit card payments and other consumer debt are hard enough to handle when you are in your prime earning years. Debts will only become more difficult to pay off when you enter retirement and your income and cash flow decrease.

Start now. You still have time to plan for a debt free retirement. Try to eliminate as much consumer debt as possible while you are still working. A good way to do this is to research balance transfer credit cards, which allow you to transfer high interest credit card balances to a 0 percent interest rate card to help you pay them off more quickly. Eliminating other high interest debt will go a long way toward decreasing your monthly expenses and increasing your cash flow. The key is to change your consumption patterns once you eliminate the debt and work to reduce everyday expenses and eliminate unnecessary spending.

[See The Dangers of Debt in Retirement.]

Delay retirement. Delaying retirement may seem like an unpopular option, but it can be one of the best financial moves you ever make. Waiting a few years can allow you to get a handle on your debt, invest more money, and increase your cash flow. You can even receive more money each month if you delay claiming your Social Security benefits. Combining these steps will help ensure you are financially prepared for retirement.

Ryan Guina is a U.S. military veteran, writer, and professional in the corporate world. He blogs at Cash Money Life and The Military Wallet.