The Cash Flow Clock: For Retirees - Book - Page 9
The Cash Flow Clock
lifestyle. Age certainly is a factor, but it is not the only, or even the most
important, one. Every situation is different, but each one requires that at
least a portion of assets be kept in Lazy Money.
Any money that we may need to spend within the next ten years should be
kept in Safe Money. For younger households, income is typically provided
from their work and Safe Money is only needed for the same Lazy Money
expenses that are not expected to occur for at least a few years in the future.
For retirees, especially those without enough retirement income from Social
Security, pensions, etc. to cover their expenses, Safe Money is critical to
maintaining sufficient cash flow.
Any remaining assets can and should be invested in Risky Money. They will
not be needed for at least 10 years and need to grow in value to provide cash
flow farther into the future. The longer we can wait to use our assets, the
more risk we can (and should) take.
The Cash Flow Clock should not remain stagnant. It should be constantly
monitored and adjusted. As Lazy Money is used, Safe Money should be
shifted to Lazy assets so that they are available for use. As Safe Money
decreases, it should be replenished from Risky Money.
This should not necessarily happen at the same time. If additional assets are
needed for Safe Money, but the market is down 20%, we don’t want to
liquidate our Risky assets, at least not yet. We want to wait until the market
recovers and our Risky Money rebounds before shifting anything into Safe
Money. In fact, we may want to shift from Safe Money into Risky Money
so that we can buy more assets at lower values and achieve more growth
overall. By giving each section of our Cash Flow Clock different timelines
and, accordingly, different investments, we have options. We can take
advantage of market corrections and harvest market gains efficiently.
Having ten years’ worth of Lazy and Safe Money buys us time. We do not
have to be desperate in liquidating Risky Money. We can be strategic and
flexible.
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