Why your cash flow is worth more than its number

Financial planning

Tracking income against expenditures can be the starting point for using your wealth more effectively.

Determining your cash flow means crunching a lot of numbers. But its real value is more than the difference between cash in and cash out.

Examining how you make and spend money—and your expectations for the future—helps your wealth team understand your goals and make recommendations to help achieve them. When you know how your decisions affect your cash flow, it’s easier to prioritize, monitor, and adjust if needed.

“Cash flow is an important piece of the overall wealth discussion,” says Kenneth Connors, a Truist Wealth advisor. “What should my portfolio mix look like? How will I insure myself? How will I fund my goals? Answers to these questions and more will impact—and be impacted by—your cash flow.”

Cash flow isn’t just a question of, ‘Do I have enough?’ says Beth Robillard, a Truist Wealth advice and planning strategist. “The value comes from the conversations started by that cash flow analysis. The analysis creates a jumping-off point for us to help clients figure out what strategies may be best in many different areas.”

Retirement is one of those areas. Cash flow projections provide important context to understand how you should plan for your income changes in retirement, how much you’re saving or spending, and how much you’ll need in the future. Your wealth team can then provide more customized estate planning recommendations and build investment portfolios that match your retirement goals.

“Cash flow projections give us an understanding of all of your different accounts and investment allocations, where you’re taking money from when you need it, where you’re putting it when you have extra, and why,” Robillard says. “We can then strategize and determine if the current course of action is maximizing growth and income, and minimizing income taxes.”

The impact of cash flow on retirement planning

You’re probably already familiar with your cash flow. Your wealth team uses digital tools that provide an in-depth look at your month-to-month income and expenses, factoring in debts, taxes, and large planned expenditures. That analysis is your baseline. All the what-ifs that you consider—both now and in retirement—can be factored in to gauge impact, Robillard says. What if I retired sooner? What if we bought a vacation home? What if we sold our family business? How much can I afford to gift to my children?

“It’s a lot easier to illustrate the potential outcomes when we have the core scenario built,” Robillard says. “I tell clients that the projections are estimates that need to be monitored over time. The numbers give you context to see if this or that happened, what the result may be to your income, account balances, and success of achieving your goals.”

Retirement planning conversations around cash flow often lead clients to some surprises. To help you get ahead of them, Robillard and Connors offer questions to consider and discuss with your wealth team.

Do you know the latest rules for required minimum distributions?

At the end of 2022, some retirement savings tax incentives changed dramatically. Among them are later start dates for required minimum distributions (RMD) on an IRA, a 401(k), or another employer-sponsored retirement plan. This means if your cash flow in retirement allows you to delay taking the RMD, you can delay the tax impact of the withdrawal, Robillard says.

Listen now: Your cash cushion in retirement may differ from today’s emergency fund. Hear how in Episode 5 of our podcast, I’ve Been Meaning To Do That.

Do you have a strategy to manage retirement income risks?

Answering this question often involves decisions around life insurance and personal liability coverage. “We look at a ‘survivor’s analysis’ where, if one spouse dies and one spouse survives their expected lifetime, we forecast whether they have enough money to live the same or a comparable lifestyle,” Robillard says. “If they have insurance, we show them how that comes into play. And if they don’t have insurance, do they have enough assets to balance the potential loss of an income?”

Have you planned for the rising cost of health care?

New solutions for long-term care insurance may give you more flexibility in how you prepare—and pay—for this expense. Talk to your wealth team about long-term care solutions and decide if and when it makes sense to get coverage. Without a plan in place, you may need to liquidate parts of your portfolio or sell real estate to pay for care—which can get messy, especially if the need arises suddenly.

Do you understand when you should take Social Security?

Social Security is a foundational part of many retirement income plans. However, the rules around when and how to collect benefits can be complex. Your advisor can help you forecast your retirement income so that you can see how your cash flow differs based on when you elect to start taking Social Security.

Is your legacy plan up to date?

Figuring out what you want to accomplish with your wealth and your legacy often leads to discussions around gifting plans and their impact on your cash flow. “Most clients have a goal of providing assets or income to their children at some point, perhaps as an inheritance. For those clients without a gifting plan, but with a growing net worth and plentiful cash flow, we might have conversations about the opportunity to make gifts to your kids sooner rather than later,” Robillard says. “Over the long run, making gifts now may preserve more wealth for your family and mitigate future estate taxes.”

Ultimately, understanding your cash flow can help you better understand your financial health.

“We want to give clients the information that helps them make informed decisions,” Connors says. “Cash flow is one piece of that information.”

Let us help you develop a cash flow plan that works for you today—and for many years to come.

Talk to a Truist Wealth advisor

Any comments or references to taxes herein are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.