Cash flow modelling can help assess your current and forecasted future wealth by matching expected income during your lifetime with expected expenses. It can help reveal how your current financial situation measures up against your life goals and could support you with your financial decision-making.
‘How long will my money last?’ ‘How much do I need to save for my future?’ ‘When can I stop working?’ Unfortunately, there are no easy answers to these questions. On the one hand, they depend on your unique circumstances: your background, your personal goals, the way you live your life and the tax rates you pay. On the other, they depend on the performance of financial markets and the economy.
Trying to find your way through these factors might seem impossible. But you can find a helpful guide in cash flow modelling, which a financial planner can use to provide a roadmap of your potential financial future.
Financial planners can use cash flow modelling as a tool to assess your current and forecasted future wealth. They do so by matching expected income during your lifetime with expected expenses. In simple terms, a cash flow model is a year-by-year forecast of your money coming in, your financial outgoings and the resulting balances.
Cash flow modelling can help reveal how your current financial situation measures up against your life goals. It can help establish financial plans to achieve these goals and could provide peace of mind.
When building a cash flow model, financial advisers consider factors such as your life expectancy and expected investment performance, interest rates and inflation. They also consider your current financial situation, how much you spend, save and invest, the tax rates you pay, your hopes for the future and your intended retirement date.
Cash flow modelling can help you manage any wealth you might have built up, work out how much you need to save and the returns you require to meet your goals. You can also use cash flow modelling to plan for care home fees and, crucially, to assess how long your money might last during retirement.
Cash flow modelling can help you assess issues such as:
Cash flow modelling can also help you assess the financial impact of any changes to your retirement plans. A financial planner can explain how your future financial position might be affected by a range of scenarios, such as:
While preparing for your retirement forms a key part of your financial plan, it is still only a part of your holistic financial planning needs. You may, for example, have to make arrangements to provide for dependents in the event of death or disablement. And you may also have to consider any inheritance tax issues that could impact your beneficiaries.
While preparing for your retirement forms a key part of your financial plan, it is still only a part of your holistic financial planning needs. You may, for example, have to make arrangements to provide for dependents in the event of death or disablement. And you may also have to consider any inheritance tax issues that could impact your beneficiaries.
Cash flow modelling could help you understand how you may be able to meet your financial goals by forecasting your future cash flows. It often plays a vital role in tax planning because it can:
It could also take into account changing circumstances, as it can:
Cash flow modelling can be a valuable tool to help work out if you’re on target to meet your personal financial goals. It could help you decide if you need to take on more investment risk or make changes to your lifestyle. But it isn’t a one-time activity: cash flow models should be reviewed regularly to adapt to changes to your life, your goals, the markets, the economy and the regulatory environment (such as tax rates).
In the end, cash flow modelling could give you greater insights into your financial circumstances and these insights can support you with your financial decision-making. A good financial adviser can explain how cash flow modelling may benefit you.
There are no hidden fees or charges at Schroders Personal Wealth, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan.
The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn’t guaranteed and can go down as well as up. The benefits of your plan could fall below the amount(s) paid in.
The value of investments and pensions and the income from them can fall as well as rise and are not guaranteed. The investor might not get back their initial investment.
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
Any views expressed are our in-house views as at the time of publishing.
