This is the second in a series of articles. 

Over 36 years of providing a financial advice, I have heard a number of clients tell me, “You will know when it’s time to retire.” My original plan was to work until I turn 70, since I truly love what I do. Over the last couple of years, however, a number of friends, relatives, and colleagues have passed away rather suddenly, or they developed chronic health issues that will greatly limit their quality of life. This caused me to re-consider my retirement timeline, especially in light of what my wife and I would like to do over the next ten years. I will be 67 in September of this year. It’s time.

As an owner of a small business, it’s easy to think the company I helped create cannot function without me. The truth is that my younger colleagues are more than capable, certainly more tech savvy than I, and probably relate to newer, younger clients better than I. And, as the person responsible for regulatory compliance oversight of our company, I am finding this role to be more and more cumbersome. Multiple layers of federal and state regulations take a steadily increasing number of hours the last few years, despite retaining an outside law firm to assist us. It’s time. 

Now that I have flipped the mental switch for retirement, there are other areas to address. The first for most people, and this column’s focus, is cash flow. For me, the question was “Can I afford to retire?” Figuring what income you will have is the easy part. Calculating what you will spend is more difficult. I believe rules of thumb are flawed and should be tossed because there are so many variables that go into retirement cash flow. Here are a few items to consider:

• What kind of part-time work will I do? After 30 years of retail banking, my wife loves her retirement:  two days a week at her “fun retirement job”, one-half day volunteering at a local food pantry, a leadership role in a women’s arts organization, and time to spend with her father who lives in a seniors’ community. It is clear that she and I will be staying active and involved. I have an interest in wine, so perhaps some kind of employment will come from that. We have a national display garden at our home, so that keeps me physically active and fulfilled much of the year. So…no clear decisions yet, but I am working on this. 
• When should I start receiving Social Security benefits? Some people have no option and must begin receiving benefits as soon as they are able. Others have the option to delay. Remember that every year beyond full retirement age means an annual 8% increase in benefits to age 70.
• When should I start withdrawals from my retirement plan account(s)? This item deserves a full discussion, and I will devote my next article to it. For some retirees, income from part-time jobs, Social Security, and other sources allows them to delay retirement account withdrawals until the mandatory age 70 ½ RMD (required minimum distribution). Others may not have this option. How is a retirement account converted to accommodate cash flow needs? Don’t forget taxes!
• What will health care costs be in future years? It’s a given that this will continue to be a rising expense. A separate column in this series will focus on health insurance and expense considerations. My wife and I have long-term care policies, and we believe benefits from them will be enough to supplement our cash flow should one of us need that care level. 
• If I have learned one thing over 30 years of helping clients, it’s that heading into retirement with no mortgage is a huge, positive impact on cash flow needs.
• Some expenses will continue: utility bills, cable/satellite, phone, real estate taxes, insurance, and income taxes. Others are more flexible: food, charitable giving, and travel, just for starters. Be sure to make your own list. Quicken software is a great way to track expenses, since it can pull data from bank accounts and credit cards to give you a complete picture and may give you an Aha!
• There may be reduced or even no spending on some things, such as clothing, eating out, retirement plan contributions, and daily commuting expenses.
• How much spending is based on need as opposed to want? A rewarding retirement does not mean eliminating wants, but it might mean being more thoughtful about how we spend our money. 

Surely there are other important cash flow considerations, some of them perhaps unique to each of us. My experience with hundreds of clients is that being realistic with your expense projections is crucial. But at the same time, don’t think of your current earnings as cash flow. Use the final deposited to your bank account number that is net of all deductions. You may be surprised to find that you are living on less than you thought, unless you have large credit card balances that you carry forward from month to month, and that could be an OMG! moment.