When can I afford to retire?
Will I have enough money in retirement?
How much do I need to retire?
State Pension will cover my expenses. Won’t it?
These questions repeatedly arise during our conversations with clients. People are generally concerned about their financial future which affects their overall lifestyle. It’s no surprise that people are living longer and further into retirement than before. The UK Government (along with those in most developed western societies), has an immense task to satisfy the financial needs of our ageing population through the State Pension and other benefits. The State Pension age is already being extended and current global political unrest adds another layer of fear.
Retirement means different things to different people, but one of the most important features of retirement is the loss of earned income. This could be a worry for many, as with rising life expectancy we are looking at retirements which potentially could last more than 30 years.
There are no simple answers to the questions above and the solution(s) will depend on a lot of factors. For example: – What do we want to do in retirement? How much are we saving for our retirement? Are there any liabilities? How are the funds invested? Are we planning to/do we have to work until our State Pension age? Have we explored all the potential avenues to maximise our retirement savings?
This is where Cash Flow Analysis comes in. It provides a structure and guidance for us to accurately identify a client’s current position and helps us to initiate a strategy or road map that helps us make a positive impact on their lives.
Cash Flow, put simply, tracks the flow of a client’s cash and when used correctly is an integral part of holistic financial planning. It begins with an intense data gathering exercise and looks to split a client journey into different phases, such as wealth accumulation whilst working and the decumulation of assets in retirement.
Cash Flow planning begins by identifying incoming and outgoing money from all sources such as earnings, investments, annual and lump sum expenditure. This data is then analysed using assumptions for inflation, growth and investment returns. Long-term and short-term goals can be costed and measured against any income and outgoings to help our clients make informed decisions on their financial situation in terms of what they want to achieve. The result is then represented in a user-friendly graph or data. This illustrates whether they will run out of money or have enough to live comfortably throughout retirement.
A visual that illustrates the impact of no longer receiving a linear wage and expenses not dropping in tandem, is a fantastic reality check. It is at this point that a financial planner can work with a client to explore options and various strategies to overcome any potential issues, like outliving assets or being unable to maintain a desired lifestyle throughout retirement.
These strategies can vary in complexity depending on targets and available resources. As you can see from the images, Cash Flow applications can be very comprehensive and it may present a challenge to keep the charts and visuals simple to understand.
Figure 1: Detailed Cash Flow Plan. Image Courtesy of Voyant
At Fiducia, we understand the power of Cash Flow Planning and hence take our time to work with clients to discuss their situation in depth. This helps clients to understand the impact in both the short and long term. We have found that clients are getting increasingly involved with the whole process and are driven to accomplish desired results and often proactively suggest various ‘what if’ scenarios. The whole experience further strengthens the client-adviser relationship and helps in working together to achieve a common shared goal of their financial security.
Just like anything else, your ambitions change and so do your finances. Therefore, we recommend that Cash Flow Analysis and the resulting strategy should be discussed and updated regularly.
In conclusion, Cash Flow Planning enables clients to understand how to best use their money to their overall benefit, whilst making them aware of their financial limitations. It forces clients to focus on the overall big picture without losing track of lifestyle and financial commitments.
Remember Financial Planning is not just about saving, it’s about spending too.
If you would like to know more about how we as Financial Advisers can help you set, plan and achieve your financial goals then financial planning section of our website: Financial Planning or send us email at: firstname.lastname@example.org
The information contained in our website is for guidance only and does not constitute advice which should be sought before taking any action. The information is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Fiducia Wealth Management Limited, or any associated companies or persons, its officers or its employees, for any loss occurred in connection with the content hereof and any such action. Professional financial advice is recommended for every case.
Fiducia is a multi award-winning firm of Financial Advisers based in Dedham near Colchester situated in the heart of Constable Country on the Essex Suffolk border. www.fiduciawealth.co.uk
Fiducia Wealth Management Ltd. Dedham Hall Business Centre, Brook Street, Dedham, Colchester, Essex, CO7 6AD.
Fiducia Wealth Management Ltd. is authorised and regulated by the Financial Conduct Authority. FCA No. 408210