How to Better Manage Your Cash Flow

Interview with Jason Parker

“Retirement is all about cash flow. It’s your income that will determine your lifestyle in retirement, not your net worth” says Jason Parker, a retirement income certified professional. He also talks about the tool he’s created, the Retirement Budget Calculator.

Douglas Goldstein: I’m very excited to have on The Goldstein on Gelt Show, Jason Parker, who is a retirement income certified professional. He’s also the bestselling author of Sound Retirement Planning. In fact, he hosts a radio show called Sound Retirement Radio.

Jason, it sounds to me like you talk a lot about retirement. I spend a lot of time talking to people in my day job about retirement. One of the things that I think people often mess up is that they focus so much, during their retirement, on building wealth and getting richer and richer. Because maybe that’s what they’ve been trying to do for decades. They don’t realize that now’s the time to worry about month-to-month, to make sure their cash flow is okay. Is that something you see also?

Retirement Is All about Cash Flow

Jason Parker: Absolutely, Doug. First of all, thank you for having me as a guest on the show. Retirement’s a different animal than your accumulation years. Retirement is all about cash flow. It’s your income that will determine your lifestyle in retirement, not your net worth. So understanding that transition from accumulation phase into distribution phase is very important.

Doug Goldstein: Yes. Cash flow, I think, is a term that people don’t recognize refers to normal human beings. They think that’s what companies do in their bookkeeping. So when you talk to someone about cash flow, how do you explain that?

Jason Parker: It’s just your income. I oftentimes say if you don’t have income, you don’t have retirement. I mean, during our working years, we have our jobs. We have our careers and we earn income. In retirement, you’ve just got to have income. If you don’t have income, you don’t have retirement.

Doug Goldstein: Yes. I think that’s very critical. The cash flow is the money coming in. It has to hopefully be just a little bit more, if not a lot more than the amount of money going out. One of the sources that people often have, and yet they just forget, is when they begin to do these calculations is they’ll say, “I’ve got $1,000,000, but if I put it in the bank, I only make 1% so that’s $10,000. I can’t retire.” When someone says that to you, what do you try to point out to him?

Don’t Take the Relaxed Approach When Entering into Retirement

Jason Parker: You’re right. There is an exercise that people need to go through. Oftentimes, I think people make the mistake of taking a very relaxed approach to entering into retirement. They use something like the 4% rule. They say, “Well. I’ve got $1,000,000 so I can spend $40,000 a year.” Some of the academic research out there that’s being done these days says that this may be overly optimistic. A 2-3% rate withdrawal strategy may be more in line with expectations given, where the stock market is, and where bonds are today.

Doug Goldstein: It’s scary for people, actually. It’s a frightening thought, if you thought you would get $40,000 on your $1,000,000. Now you’re saying maybe only $20,000 or $30,000. That’s a big lifestyle difference.

Jason Parker: There was a time when $1,000,000 seemed like a lot of money. The tagline for my show is clarity, confidence, and freedom. We want people to have a greater sense of clarity about what’s most important to them. We want to have a greater sense of confidence. To know the numbers are going to work and so alternately they can go with a greater sense of freedom. I think, as financial advisors, we spend so much time, energy, and effort talking about the nuances of the work that we do that we forget that most people don’t really care, Doug.

They really don’t. They want a good life. They want to be able to enjoy retirement and have the same lifestyle that they’ve had. They want to be able to travel and visit their grandkids. They don’t want to ever run out of money in retirement. They don’t ever want to become a burden to anybody physically or financially. It doesn’t have to be complicated but it does require putting in the work. To have the plan, ahead of time, so that you have some of those contingencies built in and understand what it’s going to look like as you’re making that transition.

Doug Goldstein: A lot of people seem so afraid of using principal and retirement. Because either they remember a time when interest rates were higher or their grandmother once told them, “Don’t forget. You should live on the interest.” Sometimes it’s simply not practical. Sometimes it doesn’t make sense because you may have a lot of principal, and it’s okay to eat into the principal on a scheduled basis. First off, do you agree with that? That it’s okay to use principal during retirement?

An Important Question to Ask Yourself When Entering into Retirement

Jason Parker: Absolutely. Well, here’s what I agree to. The most important question people need to ask about their money, and I’ll give this to you, and if they can answer this question they’re going have a much better retirement. The question is, “What’s the purpose of your money? Why do you have it the first place?”

I think one of the fears of using principal is that people are concerned that there’s not going to be anything left to leave to the people they care about. But for other people, they’ll say, “Jason, we’ve provided for our kids and helped send them to college. We helped them get married and buy their first house. Really, the purpose of this money is just to make sure that we can maintain our lifestyle and never become a burden to the people we care about.” So, if you can answer the question of what’s the purpose of the money, it’s really going to help people understand what’s okay and what’s not.

The flipside of that, though, is, I remember it wasn’t too many years ago, and I had a couple come into my office. They had retired with about $500,000 and they felt like they were going to be fine in retirement. Of course, they ended up spending too much money too quickly. They also got hit with the financial crisis of 2008-2009. And by the time they made it into my office, they had spent all of that $500,000.

Douglas Goldstein: Oh, no.

Jason Parker: They were only in their mid-70s. They were in the process of selling their primary residence, which they had lived in for a long time, and downsizing into a mobile home. So, yes spending principal is okay. But you need to make expectations about how quickly you can spend that money…. Again, retirement’s all about cash flow. It’s your income, not your net worth, that’s going to determine your lifestyle. You’ve really got to have a good cash flow plan; a good spending plan.

Douglas Goldstein: Jason, you’ve been talking to us about, first of all, understanding that the most critical number in retirement, in terms of finances, is how much money you have coming in every month. It’s not how rich you are. And the fact is there are a lot of people who may be very wealthy, but the money might not be producing income. They own raw land or property that’s not rented out. You can be as rich as can be, but if you don’t actually have money coming in every month, you’re stuck.

Also, don’t burn yourself out in your 70s, but use a little bit at a time. The question we really have to talk about is, how do you know how much you’re using? How can you, in an intelligent manner, keep track of it? And not just keep track of it, but then make smart decisions?

How Do You Keep Track of Your Money While in Retirement?

Jason Parker: Absolutely, that’s a great question. I want to get back to a point you just made. Again, you say it’s about cash flow, not your net worth. I met a gentleman recently. He came into my office, and like you were saying, on paper he looked great. He’s worth several million dollars. But the reality is that most of that money, most of that net worth, was tied up in land that wasn’t producing any income for him. So again, here’s a guy that’s in his 70’s. He’s still working just to be able to pay the property taxes on this property.

We went through a real estate market that was in a downturn. It seems like the market’s pretty hot again. But it’s certainly possible with land or with property to be in a situation where you’re upside down or it’s not producing income for you. That’s one of the reasons I say it doesn’t really matter how much you’re worth. It all is dependent on your income.

Investing in Property as a Retirement Option

Douglas Goldstein: Before you answer, I want to comment on what you said. Then I’m going to ask you the question again because it’s important.

But one of things you said about property, a lot of people here, and I know that there’s a big push all over the place. People are advertising, “Just buy a property and rent it out. You’ll collect the income and that’ll be your pension.”

Jason, what you said is exactly true that it doesn’t always work out that way. The property might not work out for you. The tenant might decide not to pay. It’s not so easy.

There’s nothing easy in the world of finance, and being a professional landlord is complicated. Not that I’m against owning property, and there are lots of different ways of doing it.

If you are good at it, you have experience in it, and that’s what you want to be doing during your retirement, fine. But if not, you’ve got to think more closely about your budgeting and exactly how much money you need every month.

That leads back to the question that I asked you, which is, “How can people do that in an intelligent and organized fashion?”

Jason Parker: I’m glad you asked the question. One of the projects we’ve been working on for the past year is to create a tool, an Internet software tool that will help people create a better budget. Benjamin Franklin once said, “Beware of the little expenses. A small leak will sink a great ship.”

Oftentimes, when people are putting together a budget, they forget about some of those little things. They forget about the renewal tabs for their car. They forget about the property taxes that are due once per year, or the insurance premiums that are due once per year. So their budget gets kind of sloppy. It’s those little expenses that can derail your retirement plan. That’s why we created some software to help make people’s lives better.

Those Little Expenses Make a Huge Difference

Douglas Goldstein: I want to comment because I saw an article recently that someone, I think some millionaire, said. I think the article is in Australia. He said, “If people would stop spending the $19 on their avocado toast, they could buy a house one day.” Then the other side of the equation said, “Oh, really. If we only would spend a little bit less on our lunch or our lattes, we’d be able to be successful.” And they were laughing at this.

But I really think you’re right because it’s the little things that build up over time. It’s not one time buying a coffee, or one time spending too much on a meal, or not paying attention to a specific bill. Over time, these things do build up and it can severely damage your retirement or your budget. Jason, tell me. I want to learn a bit more about this budget calculator. First of all, does it work? Does it matter what currency you live in, because we have a lot of people living in Israel?

Jason Parker: Well, the calculator is designed for, obviously, people that live in the United States and so it’s not currency dependent. We’re just talking about values; numbers. As I was designing it, I was thinking about the people that we serve, who are primarily in the United States. All of the folks we serve are in the United States. But the name of the calculator, if you want to take a look at it, it may not be appropriate for everybody, but it’s called the Retirement Budget Calculator.

Douglas Goldstein: Okay, we will put a link to that at the show notes of The Goldstein on Gelt Show. I understand there’s a special offer you have for the listeners of today’s show. Can you tell us about that?

Jason Parker: Yes. It’s only good for 30 days. But for your listeners, we wanted to give them a special offer. This is a paid calculator, so we’re not doing any advertising. This is not some kind of investment management tool. It’s just a calculator that people have access to. We charge a one-time fee of $54. But for your listeners, if they use the coupon code gelt when they register, we’ll give it to them for 50% off for 30 days.

Douglas Goldstein: We really appreciate that. Jason Parker, people can check you out at Retirement Budget Calculator, or where else?

Jason Parker: Sound Retirement Planning.

Douglas Goldstein: Okay, thanks so much for taking the time. Looking forward to having you back again soon.

Jason Parker: Thanks a lot, Doug.