What is a helpful tool for measuring retirement income adequacy?

A cash flow analysis is a helpful tool for measuring retirement income adequacy because it provides a detailed view of an individual's income and expenses over a specific period. This analysis helps to identify how much money is available for spending in retirement after accounting for essential and discretionary expenses. By comparing expected income sources, such as Social Security, pensions, and withdrawals from retirement accounts, with projected living expenses, one can assess whether their resources will be sufficient to maintain their desired lifestyle during retirement years.

This analysis goes beyond simply looking at income or expenses in isolation; it allows for the evaluation of how different factors—such as changes in spending patterns, inflation, and unexpected expenses—may impact overall financial health in retirement. Understanding cash flow also aids in strategic planning for when and how much to withdraw from various accounts, ensuring that retirement resources last throughout one’s retirement lifespan.

Other tools, while beneficial in their own right, serve different purposes. A net worth statement offers a snapshot of an individual's overall financial health but does not directly assess ongoing income needs. An investment portfolio review focuses on the performance and allocation of assets but doesn’t provide a complete picture of income versus expenses. Lastly, a family budget plan is essential for managing current finances but may not effectively project long-term retirement