Cash Flow (Spendable Income) in Retirement

[robert]

Okay . . . since we're doing polls, let's do one that measures what really counts in retirement -- how many greenbacks you have each month to support yourself and all your retirement dreams. "Net Worth" may be a fairly good proxy for estimating what one's cash flow is likely to be, but why not simply nail it down once and for all. So, for those who are already retired, and for those who are near enough to retirement to be able to accurately estimate their anticipated cash flow, how many dollars do your various income streams generate on an average YEARLY basis? I'm looking for money you can stick in your wallet and take to the grocery store. So that we're comparing "apples & apples", I'd like to suggest using the following definition of "cash flow":

CASH FLOW = [(investment net worth) x 7.5%] + pension payments + social security payments + any other regular income payments.

"Investment Net Worth" represents your investments that generate reasonably reliable income (this does not include your house or your baseball card collection). For the sake of this survey, I'm going to assume everyone earns 7.5 percent on their investments (again, so that we're comparing apples & apples). The reason for this poll -- I'm getting very close to taking the ER plung . . . I'd like to know how much others who have preceded me have available to live on.

Robert

 

[Mr._johngalt]

Hi Robert.....using your instructions I get about $26,250 for a couple with 4 dogs. Wife works now, but my SS and a (maybe)
reverse mortgage will replace her income if she quits. If she does not quit after I hit 62, then I will defer taking income
somehow. Thus, cash flow will remain at about $26,250 for some time. Most folks here will find this ridiculously low, but
we live quite well at that level.

JG

 

[grumpy]

Robert,

I don't quite get the point of including 7.5% of investment net worth as cash flow when most of us use a SWR of less than 4%. Using your formula I get a number over $140K. We don't spend anything like that much in retirement. Our total budget, including provision for taxes is $90K.

Grumpy

 

[AltaRed]

I agree the 7.5% does not make any sense. Stick to the tried and true such as 4% or 3.5% SWR. Meaningless survey.

 

[Nords]

I agree the 7.5% does not make any sense.  Stick to the tried and true such as 4% or 3.5% SWR. Meaningless survey.

I think you guys are confusing cash flow (investment returns) with expenses (spending). He's trying to figure out how much we have available to spend, not how much we're spending.

The fact that much of the cash flow is unrealized cap gains or reinvested dividends isn't considered pertinent to the question.

OTOH, Robert, I'm not sure that cash flow is relevant either. Most of us estimate our expenses and try to build a stash that allows us to cover the projected expenses at a reasonable SWR. I never considered cash flow as an ER criteria and maybe you don't need to either.

 

[haha]

The fact that much of the cash flow is unrealized cap gains or reinvested dividends isn't considered pertinent to the question..

Unrealized capital gains are an interesting inclusion in cash flow.

Ha

 

[retire@40]

...For the sake of this survey, I'm going to assume everyone earns 7.5 percent on their investments (again, so that we're comparing apples & apples).  The reason for this poll -- I'm getting very close to taking the ER plung . . . I'd like to know how much others who have preceded me have available to live on.

You are the one that is mixing apples and oranges in your poll.

Why assume everyone is making an arbitrary 7.5% when even as an assumtion, it's known to be wrong.

In retirement, cash flow is whatever you need it to be.  You can take a cash flow of 2% of your investments or 5% of your investments.  You can have a negative return in one year, but still have cash flow.

 

[Mr._johngalt]

I like this topic, although I will concede there are about
a bazillion ways to define "cash flow".

JG

 

[dex]

Cash Flow
What does it Mean? The amount of cash a company generates and uses during a period, calculated by adding non-cash charges (such as depreciation) to the net income after taxes. Cash flow can be used as an indication of a company's financial strength.
Investopedia Says... Cash flow is crucial to companies, having ample cash on hand will ensure that creditors, employees, and others can be paid on time.
http://www.investopedia.com/terms/c/cashflow.asp

Cash flow for a person is the same as it is for a company. Simply stated it is th cash available. It is money -cash. It is not a financial instrument that needs to be sold to obtain cash.

From my reading of this poll it is asking how much cash flow is generated. It is not asking how much is needed to meet expenses. So a person could have a cash flow of $100K and but only needs $50K to live the life they want. I could be wrong about what the poll is asking.
Maybe the question should have been what is your cash flow and your total expenses.

 

[dex]

Cash Flow
What does it Mean? The amount of cash a company generates and uses during a period, calculated by adding non-cash charges (such as depreciation) to the net income after taxes. Cash flow can be used as an indication of a company's financial strength.
Investopedia Says... Cash flow is crucial to companies, having ample cash on hand will ensure that creditors, employees, and others can be paid on time.
http://www.investopedia.com/terms/c/cashflow.asp

Cash flow for a person is the same as it is for a company. Simply stated it is th cash available. It is money -cash. It is not a financial instrument that needs to be sold to obtain cash.

From my reading of this poll it is asking how much cash flow is generated. It is not asking how much is needed to meet expenses. So a person could have a cash flow of $100K and but only needs $50K to live the life they want. I could be wrong about what the poll is asking.
Maybe the question should have been what is your cash flow and your total expenses. That would have give us the net profit/loss for the person.

 

[haha]

From my reading of this poll it is asking how much cash flow is generated.  It is not asking how much is needed to meet expenses.  So a person could have a cash flow of $100K and but only needs $50K to live the life they want.  I could be wrong about what the poll is asking. 
Maybe the question should have been what is your cash flow and your total expenses. 

You are certainly correct in your definition of cash flow. That much is cut and dried. The difficulty is that many people with moderate portfolios who actually live off their investments, and follow a mixed stocks/ fixed income portfolio approach couldn't live off their cash flow at current interest rates and dividend yields. That is what the SWR business is all about. The whole (possibly flawed) idea is that equities return so much that one can afford to spend more than his income from investments. In this case, since there is no depreciation involved, cash flow in fact equals income from investments. The deficit is meant to be funded by periodic sales.

Ha

 

[sgeeeee]

I didn't worry about what it meant or whether 7.5% was justified. I just figured it was a figure-of-merit and answered the question. Since I don't start collecting a pension or social security for several years, I left those figures out.

 

[robert]

To All,

The idea behind this survey is not to capture how much you are spending, but rather how much cash flow you have available to spend.  Since most ER's have spent a lifetime practicing LBYM, I presume that the available cash flow will exceed total expenditures in most cases. . . often by a wide margin.  I chose 7.5 percent because I believe that is a reasonable rate of return on investment.  Some are going to experience a better return, while some are going to enjoy less.  But, if we all use the same rate (for comparision purposes), we'll be making an honest comparison.  This survey will identify how much cash flow individuals on this board have to implement their ER plans.  To me this is a more meaningful measurement than "net worth."  I could have a net worth of zero, but have trust fund shelling out $200K per year and I wouldn't have a worry in the world.  It seems to me that "cash flow" is where the rubber meets the road when it comes to a successful retirement.  I'd like to know what kind of cash flow successful ER's have available.  Whether they spend all of it is a question for another day. 

Robert

 

[Mr._johngalt]

To All,

The idea behind this survey is not to capture how much you are spending, but rather how much cash flow you have available to spend.  Since most ER's have spent a lifetime practicing LBYM, I presume that the available cash flow will exceed total expenditures in most cases. . . often by a wide margin.  I chose 7.5 percent because I believe that is a reasonable rate of return on investment.  Some are going to experience a better return, while some are going to enjoy less.  But, if we all use the same rate (for comparision purposes), we'll be making an honest comparison.  This survey will identify how much cash flow individuals on this board have to implement their ER plans.  To me this is a more meaningful measurement than "net worth."  I could have a net worth of zero, but have trust fund shelling out $200K per year and I wouldn't have a worry in the world.  It seems to me that "cash flow" is where the rubber meets the road when it comes to a successful retirement.  I'd like to know what kind of cash flow successful ER's have available.  Whether they spend all of it is a question for another day. 

Robert

Hello Robert. Makes sense to me. We spend all cash flow from all
sources and intend for that to continue indefinitely. Net worth
will hopefully hold right where it is now. Health issues/inflation
being the main potential pitfalls.

JG

 

[unclemick]

Hmmm

26k per year(pension plus early SS) or 50k per year - if I add divs/interest from my portfolio which are currently reinvested.

My snappy and brilliant one cup of coffee reposte!

Unfortunately - hindsight being twenty twenty - I never managed to follow my own plan from 1993 to 2005 (age 49-62). Planned to live off income and 72t, on occasion championed rent vs buy, pooh poohed SWR here and there.

Unemployment/severance comp, unplanned cash mergers in DRIP stocks, sold and consumed some real estate proceeds, one year total temp work, etc.
Life has a way of screwing up spreadsheets.

New plan - now in MO vs LA swamp(unplanned) - my cash flow will be ? - pension plus SS plus now portfolio income - unless I sell some stocks to pay off the new mortgage.

New to 'winter on the plains' - I don't have a tight handle on yearly expenses yet.

Soooo - pension plus SS plus portfolio income - or spend some chunks down as needed.

Now that I've confused myself - I'll go have another cup of coffee.

Heh heh heh

 

[youbet]

Robert,

Since you did not include categories for married and single, I did it this way:  calculated my cash flow (using your rules) based on my own pension and SS plus 7.5% of one half of our investment portfolo.  Did the same for DW and entered her number seperately.  Is this what you had in mind?

youbet