When you picture retirement, you might imagine a time with no work and a high cash flow. But where is that money coming from? How can you make sure you experience financial freedom during your golden years?

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To guarantee you have adequate cash flow in retirement, there are a few key steps you need to take before you can settle down. Here’s how to ensure that when you stop working, you can stop worrying as well. 

Ask Yourself How You Want To Live in Retirement

What determines financial freedom in retirement depends on your goals. There is no magic number that works for every retiree. It depends on how you want to live your life after you stop working.

The first step to nailing down cash flow in retirement is asking yourself what your best-case scenario would look like, said Kendall Meade, financial planner at SoFi. “Financial freedom is the ability to live the life that you want. For some this may mean the ability to retire completely and still be able to pay all of your bills. For others, it may mean being able to retire completely and have money to travel,” Meade said. 

Pay Off High-Interest Debts

One major obstacle to your cash flow in retirement is if you’re still paying off debt. Meade suggests prioritizing paying off high-interest debt before you retire, so you can use the money coming in when you’re retired to support your life, rather than to support your debt. 

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Save 15% of Your Gross Annual Income Per Year for Retirement 

Though the exact amount you need in retirement depends on your goals, Meade said saving 15% of your income every year is a good rule of thumb, with one caveat. “This assumes that you start at a young age and retire at a normal retirement age. For those who got a later start or want to retire sooner you may need to save more.” On average, people start working at around 17 years old in the United States and retire at 64. 

Figure Out Roughly How Much You Need Per Year

Does your cash flow in retirement match what you intend to spend money on based on your goals? This is crucial to determine. Unbiased CCO Nihal Pekbeken said a good first step to understanding this is to calculate your net worth, or the value of your assets minus your liabilities. “Your assets are all your retirement income streams, including Social Security, retirement accounts, and other investments. While your expenses can be everything from living costs and bills to the more exciting stuff like holidays and hobbies. It’s suggested on average Americans spend $60,000 per year after they retire. This figure might seem a little high or low depending on your personal retirement goals, but it does give you a good starting point to assess where you stand.”

How will you know you’re living financially free during retirement? “Financial freedom in retirement means having enough money to cover your expenses and live how you want without worrying about financial constraints or having to find a part-time job to supplement your income,” Pekbeken said. 

Work With a Financial Planner

If you really feel like you’re struggling to figure out how you’re going to live the life you want to in retirement, speak to a professional. “Work with a financial planner to have a comprehensive financial plan done. This involves looking at your specific financials and goals to determine if you are on track,” Meade said. 

You should talk to a financial advisor who has access to modeling tools, said Doug Ornstein, CFA and senior integrated solutions manager at TIAA Wealth Management. These can help lay out for you how much you need to save to make your budget and achieve your goals. Ornstein also specifies that a financial advisor should help you create a diversified income plan. “A diversified income plan is one that will address the 4 key risks you’ll face in retirement: longevity risk, market risk, inflation risk, and cognitive risk.” This way, all of your bases are covered.

However, Ornstein said this is an ongoing process, and that to truly enjoy your retirement, you should regularly check in with your financial advisor. “At least once every two years, ask your advisor if you’re still on track and not at risk of running out. Let them do the math for you. Financial freedom is about spending our time how we want. Not about spending our money how we want. That’s key to understanding in this phase of life.”

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