Lifetime cash flow modelling is a concept borrowed from business. Essentially it involves looking at the assets and income of a company over a period of time, and balancing these against current and future liabilities, alongside a forecast of future income and expenditure linked to business objectives.
Similar principles can be applied within personal financial planning and are incredibly relevant to the individual client. Initially your adviser will identify personal financial goals and objectives, and then your financial objectives will be modelled alongside current and future assets to identify if your objectives are realistic and, most importantly, whether they are sustainable.
Lifetime cash flow modelling is an invaluable exercise for those for clients who are planning for, or entering, retirement. We often get asked: ‘Can we afford to retire now and have an income of £X through to age 70 whilst our health is likely to be good, and then £Y for the rest of our expected lives without running out of funds or income?’ It is exactly these types of questions that cash flow modelling can help to answer.
It also holds added value because additional variables can be added and modelled into the process. These variables may include possible inheritances, the start of state pensions, and gifts of capital to children. Negative impacts such as emergency medical costs and stock market volatility/declines are also considered.
The outcome of lifetime cash flow modelling is a full picture of possible outcomes based on the projections and assumptions used, and whilst the modelled outcomes are not guaranteed, it does help to further facilitate and underpin informed financial decision making.
Our advisers are strong advocates of cash flow modelling. They will work with you to create a plan that focuses on delivering a lifestyle outcome for you and your family that is meaningful and relevant, and which fully capitalises on the assets you have available whilst reducing the risk and worry that you will ever run out of money.
For some of our clients, cash flow modelling has revealed a greater than expected future wealth projection that has resulted in an enhanced disposable income availability.
In addition to those focusing on retirement planning, our advisers encourage all clients to engage with cash flow modelling as part of their annual financial planning review.
Lifetime cash flow modelling is not regulated by the Financial Conduct Authority.
If you’d like to find out more about how cash flow modelling can help you plan for the future, our advisers would be happy to help.