Count Your Cash for a Better Retirement

by Marc Bastow | July 19, 2013 2:15 pm

One thing I spend a lot of time rifling through is the cash and free cash flow areas of financial reports. It’s a vital exercise in determining whether a targeted dividend stock can be counted on to keep up its payments. Cash flow especially is important when it comes to increasing those payouts down the road.

Of course, the cash flow concept comes to mind when planning for your retirement, too.

How so? Well, liquidity — in the form of cash flow — is key to avoiding what scares some people more than death: running out of money.

A poll of 3,257 respondents conducted in June by Allianz Life Insurance Company found that 61% of those people feared using up their assets before dying[1] than the actual event itself. And those respondents who rely on 401k plans to fund retirement were truly concerned about asset depletion, as more than half had seen their net worth collapse during the 2008-09 downturn.

But a little cash flow exercise of your own can help you mitigate some of those fears.

In a nutshell, “sources and uses of funds” in corporate life reflect what is happening to the cash generated by a business through any source (revenues, interest on cash) and for any use (purchase of inventory, hiring salespeople), but you can use your own version of the statement to plan your own retirement.


A sources-of-funds analysis will identify a few things:

  1. Where your money is being generated.
  2. In what increments and time periods you can expect those funds.
  3. How long you can expect to obtain those funds.

By examining your portfolio and understanding your sources of funds, you can build a “laddered” cash source statement — say, with Excel — to understand the flow of your investment income.

As an example, let’s look at a few potential sources of income. Let’s take a few dividend stocks — Coca-Cola (KO[2]), McDonald’s (MCD[3]) and Johnson & Johnson (JNJ[4]), which pay out quarterly. Then a real estate investment trust — say, Realty Income (O[5]), which will pay out monthly. Lastly, Treasury, municipal and corporate bonds generally pay out semiannually, so we’ll use a hypothetical county revenue bond. (And past this example, remember to incorporate cash inflows from maturing bonds, as they are a critical component of your cash flow).

For the sake of easy math, let’s assume you owned 1,000 shares of each of the aforementioned securities:


Realty Income @ 18 cents per share: $180


Coca-Cola @ 28 cents per share: $280
Johnson & Johnson @ 66 cents per share: $660
McDonald’s @ 77 cents per share: $770


County Revenue Bond: $1,750

Now, let’s put it all together in a hypothetical six-month spread starting next year …

Source Jan Feb Mar Apr May June
Realty Income $180 $180 $180 $180 $180 $180
Johnson & Johnson $660 $660
Coca-Cola $280 $280
McDonald’s $770 $770
County Rev. Bond $1,750
TOTAL $180 $1,610 $460 $180 $1,610 $2,210

Now, this is a pretty simple table for example’s sake, and doesn’t factor in other potential sources such as interest from cash in a money market or savings account, pension payments, Social Security checks or regular income from reverse mortgages or annuities. Not to mention, you’ll want to update your list on a regular basis to account for changes, such as periodic increases to stock dividends.

Once you have this list together, you should have a pretty good idea of your “sources.”


This part might not be fun, because if you’re honest about the exercise, you could end up finding you’re spending money where you shouldn’t.

Start with what the companies call “fixed costs”: housing (rent or mortgage payments), car payments, school loans (for you or your children), insurance payments, utility bills, phone bills and heck, even cable TV — things that you know you will have to pay on a regular basis, and that are a relatively fixed amount.

Then you move on to variable costs, which mostly take the form of credit card bills. If you pay them all off at once, note it; if some are minimum payments or more toward “installment” debt, input those costs as such.

Last — at least for now — the discretionary payments. Dinner out on Monday, Wednesday and Saturday nights; theater tickets when possible; trips to see your favorite baseball team; and travel. (Like I said … this might get uncomfortable.)

What you should get is another table like the one above. Combine it with “sources,” and this statement should tell you how you earn and spend your money — and where you might be able to fix it if things are out of whack.

Bottom Line

Guessing is a one-way ticket to a rocky retirement. Even if the picture painted by your sources-and-uses statement isn’t pretty, it’s better to know ahead of time so you can deal with it in advance rather than waking up one day to find yourself hopelessly in the hole.

Take the time to sit down and put your finances on paper — you’ll thank yourself later.

Marc Bastow is an Assistant Editor at As of this writing, he was long JNJ.

  1. 61% of those people feared using up their assets before dying:
  2. KO:
  3. MCD:
  4. JNJ:
  5. O:

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